California regulators have given their stamp of approval to Uber’s and Lyft’s carpooling services.
The California Public Utilities Commission on Thursday passed new regulations for ride-hailing services including where drivers have to display logos on their cars, tighter background checks for services ferrying minors, and increased reporting requirements.
Most notably, the commission decided to formally approve “fare-splitting,” its term for carpooling services like UberPool and Lyft Line. The decision was a bit anti-climatic: Both companies introduced carpooling in mid-2014, whereby passengers who share a ride along the same route a ride can pay less.
But Thursday’s vote is still a huge victory—and relief for both Uber and Lyft. Despite their beginnings as taxi rivals that ferry each passenger directly to the destination of their choice, carpooling has grown into a significant business for companies, particularly in California.
UberPool accounts for nearly half of all Uber’s rides in the Bay Area, according to the company. Meanwhile, Lyft Line handles more than half of the rides the company completes in San Francisco.
“We are very happy that the Commission endorsed forward-thinking products like uberPOOL and listened to Californians advocating for programs to allow more drivers to earn money on their own time,” an Uber spokeswoman told Fortune.
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Echoing the sentiment, a Lyft spokeswoman told Fortune that “Today’s decision allows Lyft to continue bringing innovative new features to market in California, such as Lyft Line which allows passengers to share rides for a reduced price.”
Carpooling’s importance for the two companies isn’t just because it’s popular among their passengers—it’s how they’ll keep their companies efficient and low cost. The more efficiently drivers can pick up and drop off passengers by packing more of them into each ride, the more money the companies and their drivers can potentially earn.
And it’s also how they plan to make good on their claims that their services are better than owning a car. Reducing the number of cars on the road is an argument that both companies use when trying to convince sometimes skeptical regulators about the benefits of their services.
“When rides get cheaper, it means that for more people in more cities, Uber is cheaper than owning a car,” Uber co-founder and CEO Travis Kalanick told the New York Times in March. “And when Uber is cheaper than owning a car, we can become a mainstay of transportation in that city.”
One issue the commission did not decide on Thursday is the proposed stricter rules when it comes to Uber and Lyft drivers using rental cars. The proposal, which seeks to impose minimum lease contracts of four months, would heavily jeopardize some of the car rental programs and partnerships the companies have in place or plan to introduce.