Uber banks on world domination

September 18, 2014, 11:25 AM UTC
Uber financing
contract Armin Harris
Photograph by Brad Wenner for Fortune

The story line about Uber these days usually involves a fight: Uber scuffling with German regulators, who banned one of its car services nationwide; Uber shiftily snatching drivers from its pip-squeak rival Lyft; Uber skirting taxi commissioners and government officials of all stripes to bring its disruptive personal transport-by-mobile-app service to the masses. Like any good tech startup, Uber is in a dogfight everywhere it turns. Like few tech startups, everywhere it turns it’s ready for confrontation.

Yet Uber has at least one initiative in which it’s making love, not war. Ten months ago the startup introduced a modest program to help its drivers finance car purchases. The five-year-old company announced that it would partner with General Motors, Toyota, and several unnamed financial institutions to reduce drivers’ monthly payments and get them on the road faster. Uber drivers have the kind of cash flow that lowers their risk to lenders, CEO Travis Kalanick wrote in a memo announcing the initiative. That predictability should enable the drivers to borrow at better rates than they’d otherwise get on the open market.

Drivers hustling for fares aren’t the only ones delighted by Uber’s self-interested helpfulness. Auto lenders are glad to have the additional business that Uber is throwing their way. Car dealers love that it’s helping them move inventory by creating qualified buyers who didn’t previously exist.

“We’re helping finance the instrument of revenue generation. In that sense, we’re generating revenue from this already.”
Brent Callinicos, CFO, Uber

The financing program is unique in part because Uber isn’t doing any financing. Instead, it is playing middleman between drivers whose credit might be subpar or whose cars aren’t new enough to meet Uber’s standards, and the car salesmen and auto lenders with which it works. Uber itself isn’t making any money on the scheme, not yet anyway. The company sees its go-between role as a competitive advantage in its quest to grow its network rapidly in cities around the globe. “We’re helping finance the instrument of revenue generation,” says Brent Callinicos, a longtime finance executive at Microsoft and Google who is now Uber’s chief financial officer. “In that sense, we’re generating revenue from this already.”

Uber financingTraore, a former taxi driver who also drove a Google bus—“I spent too much time in Mountain View,”Photo by Brad Wenner for Fortune

Given Uber’s torrid growth and rabid cadre of drivers—“hundreds of thousands” of them are active on its platform, it says—the opportunities are huge for the disruption of purchases of everything from cars to insurance.

The program started small, in just five U.S. cities: San Francisco, Boston, Philadelphia, Chicago, and Dallas. Those are some of Uber’s biggest markets, but they are a fraction of the 200-plus cities worldwide in which it operates. Its ambitions are grand. “We’re playbooking this much more,” says Callinicos in an interview at Uber’s headquarters in San Francisco’s scruffy Mid-Market neighborhood. “My vision is to launch financing simultaneously when we launch a new city.”

Top reasons for using ride sourcing The real reason that people use mobile app-based car services? They’re easy.Chart Source: University of California Transportation Center

The original vision for Uber’s financing plan came in 2012 from an ex–Goldman Sachs commodities trader named Andrew Chapin, who was working in Uber’s New York “driver operations” group. Chapin had become an expert in how limo drivers financed their rental arrangements with livery services. He recognized that limo and taxi drivers got a fairly raw deal compared with what they could make with Uber. The catch was that many drivers were immigrants with poor or no credit histories and were in no position to finance a commercial vehicle. During a routine New York taxi commission visit with Kalanick, Chapin pitched the boss on his plan: Create a program to help finance drivers using their demonstrably reliable cash flows from Uber as a way around their spotty credit.

Kalanick seized the opportunity. Chapin moved to San Francisco and built what is now a four-person team to design the program. Automakers were keen on participating, particularly Toyota and GM, among the most popular brands for drivers participating in UberX, the company’s non-limo service. Uber has since added Ford to the program.

Just as Uber’s app works seamlessly for passengers, who initiate a trip with a tap and end it without pausing to pay or tip, the financing referral program revolves around simple-to-use technology. When a driver without an approved car applies to Uber, the process notifies the person that financing for a newer one might be available through a local dealer. Uber prohibits vehicles older than 10 years.

TEC.10.06.14.Uber financing.04BLike its mobile app, key part of Uber’s vehicle financing program is a seamless experience. Above, Traore takes Fortune for a ride.

That is precisely how Adama Traore, a 36-year-old immigrant from Mali, ended up with a 2014 Toyota Camry. A former taxi driver who also drove a Google bus—“I spent too much time in Mountain View,” he says, referring to where Google has its headquarters—Traore says his credit is “not great but not poor either.” He did own a car, but it was a 2001 model. Uber steered him toward a Toyota dealership in Walnut Creek, Calif., east of San Francisco, and calculated how much he’d have to drive to make his payments. (Just as Uber deducts its commissions from customer payments on its drivers’ behalf, it also makes automatic loan payments, remitting them directly to the lender.) “This is my full-time job now,” Traore says. “I wake up when I want to wake up, and I decide how much money I want to make each week.”

The arrangement works out for dealers too. Don Davis, head of consumer finance for the Walnut Creek dealership, says he’s sold about 300 cars since November as part of the Uber program. He says he learned about the program from one of his go-to lending partners, Exeter Finance, a Texas company owned by private-equity firm Blackstone. Notably, Davis says of the roughly 300 applicants sent by Uber, “there have been only two or three that have been declined.”

MANIFEST DESTINY FOR A MOBILE WORLD: After launching in San Francisco in 2009, Uber has been on a growth tear. In 2011 the company expanded its services to New York, Seattle, Boston, Chicago, Washington, D.C., and its first overseas outpost, Paris. A year later, it added Los Angeles, London, and 12 more world cities. In 2013 the company added 42 cities, from Manila to Milan. There are still a few months left in 2014, but Uber has already brought online an additional—and astounding—146 cities. Its vehicle financing program is available in 22 of them.Graphic Source: Uber

Uber says it’s still too early to draw definitive conclusions about the program. It says drivers who have financed through Uber drive higher-than-average hours per week and receive higher customer ratings, perhaps because they are driving new cars. Callinicos says there are no current plans for Uber to take a commission on the transactions it is facilitating, which it presumably could pull off fairly easily. “We’re tweaking the program constantly,” he says. “Right now we think it would be penny wise and pound foolish” to try to profit from it directly. See how nice Uber can be when it wants to?

WATCH: Uber vs. Lyft: Are drivers paying the price?

This story is from the October 6, 2014 issue of Fortune.