The Cabinet has approved a draft of "Ride-sharing Service Guidelines 2017" in January. This is a result of the Bangladesh Road Transport Authority (BRTA)’s persistent willingness, which was quite adamant from the beginning to regulate ride-hailing companies.
While there are enough reasons to debate whether we need regulations for ride-hailing business yet in Dhaka, it is true that over the past two years we have seen a rapid growth of ride-hailing business in Bangladesh. More on that in a moment. This piece has a lot of references and I intend to link back to this often in the future.
Let’s take a look at the guidelines. From Guidelines approved to regulate e-hailing services by Saqeb Mahbub, Associate Partner & Rifat Rahman, Associate of Mahbub and Company, major points in the guidelines:
- A ridesharing company and the owner of the vehicle must obtain enlistment certificates from the BRTA;
- The company must have VAT and TIN certificates and it must follow the conditions of the Companies Act;
- A company may apply online for the license and pay Taka One Lakh for trade license for one year and will have to reapply for its renewal three months ahead of the expiry of the license by paying Taka 10,000 annual fee;
- BRTA will ascertain the service area of a ridesharing company taking into account the commuters demand, road network and the efficiency of the service;
- A ride-sharing company must have an office in its service area and a certain number of vehicles in its fleet to start its business. Moreover, it must have at least 100 vehicles for operating in Dhaka, 50 for Chittagong and 20 for other cities;
- The ridesharing company will have to have an agreement with the vehicle owner and the driver detailing rights of all sides and any party can withdraw from the agreement by giving one-month prior notice;
- The ridesharing vehicles must be parked in specific stands in an area, and no services can be offered from a place other than the designated areas;
- An owner of a transport will be allowed to provide only one transport for ridesharing while the vehicle must exhaust one year time after its registration to be eligible for ridesharing service;
- Name of the ridesharing vehicles must be deposited in the BRTA web portal to allow the passengers to lodge complains if necessary;
- The fares of the ridesharing vehicles would not be more than the fare mentioned in the “Taxicab Service Guideline.”
- In case of any default, the Government can cancel the license of any ridesharing company and take action as per law of the country, etc.
Regulation and Ride-hailing
I'm skeptical of the need for any regulation without significant evidence that it is absolutely necessary. It is more so when an industry is in the development phase which applies to the ride-hailing in Dhaka.
I consider ride-hailing in Dhaka to be in a very early stage. When we try to design policy for an industry which is not fully matured yet, we run two particular risks: 1) we can’t foresee what the industry will look like in a few years when it will fully mature thus fail to address that in the policy 2) and we run the risk of doing something that can hamper the growth of the nascent industry because while every regulation does evolve over the time, it often takes time.
For instance, almost all the ride-hailing companies in Dhaka now have logistics operation and on-demand food delivery operation. While it is possible that they run these logistics operations with a separate license, it is absolutely possible to connect two services technologically and that is where leverage is for the ride-hailing companies. I don’t think approved guideline has considered this reality.
Every regulation comes with certain limitations. Although regulations are prepared with utmost good intentions; at times, they end up not serving the purpose.
When you prepare a regulation or a policy, it is always about tradeoffs. You choose a policy over another, meaning you gain some benefits and face some disadvantages. When policymakers often see the benefits from a certain regulation, there are chances that they overlook the shortcomings both in the short-term and long-term.
This applies to this guideline as well. While I like the overall guideline (because it is quite minimalistic) there are multiple points that do not make sense. More on that in a moment.
An overview of ride-hailing business (Bangladesh and beyond)
From Go-Jek invests in Pathao:
“Mobility is a big problem in Dhaka, as we wrote in a recent report. It is hard to get from one place to another in the city without spending hours on the road and the public transportation system is showing little sign of improvement.
Traffic has gotten worse over the years. According to World Bank, average traffic speed in Dhaka has dropped from 21 km/hour to 7 km/hour over the last 10 years.
According to “the Government’s own estimate, Dhaka’s traffic jams eat up 3.2 million working hours each day and drain billions of dollars from the city’s economy annually”.
Hence, we are seeing an influx in the number of mobility and on-demand transportation services in Dhaka.
Dhaka has over 9 startups operating in the space including Toma, Chalo, Sam, Oikhali, Pathao, Uber, Amarbike, Amar Ride and Muv (you may see our mobility market map here, here and here).
It seems that the market is going to be even more competitive in the coming years. International players like India’s Ola and Grab are now eyeing Bangladesh. As we reported earlier, Ola is planning to launch operations in Dhaka by the fourth quarter of this year.
Investors across the world have been pouring billions of dollars into ride-hailing and transportation companies across the world.
This year alone, we have seen Didi Chuxing of China raise $5.5 billion to fuel its global expansion and Indonesia’s Go-Jek a $1.2 billion to fight Uber and Grab.
Mobility has become one of most talked about industries. With the emergence of electric vehicles led by Tesla, and self-driving car led by Google, Uber, Tesla, Lift Didi and in fact Apple, the future of transportation is a real hot topic.
Car manufacturers including GM are also investing heavily in the space.
Asia has seen some of biggest mobility startups including Grab, GO-Jek, Ola, Didi, Easy Taxi (southeast Asia), Meru Cab, Jagnoo, Shuttl, Careem (Middle East) and a host of other smaller players.”
Ride-hailing is a relatively new phenomenon in Bangladesh compared to other similar markets such as India or Indonesia.
Chalo was the first company to launch a, close to, ride-hailing business in Dhaka. While the company had a brilliant opportunity, it failed to execute and missed the opportunity to lead the market.
Uber, the first proper ride-hailing business in Dhaka, was launched in November 2016, Pathao followed in December with bike-hailing and then a host of other players including MUV, SAM and a few others joined in. The number continues to grow.
The real business of ride-hailing
We have a rather simplistic idea about ride-hailing business in Dhaka. We consider that these companies are mere taxi companies which is an absolutely wrong way to look at these companies.
If you pay attention, the approved ride-hailing guideline also suffers from this shortcoming of understanding of the ride-hailing business and that’s why we should be more critical and forward-looking while designing any guideline for this new generation of companies.
I wrote in The State Of Consumer Technology In Bangladesh At The End of 2017:
“Ride-hailing is obviously a major trend. This is an interesting space. It connects both offline and online and does so very efficiently. On top of that, transportation is more like messaging in mobile, the ultimate deal in the physical world.
When you dominate the nodes of transportation, you can do a lot of other things. Moreover, Ride-hailing services are app-based which allow these service providers to have a dedicated space in users mobile phone. You can use that for many other reasons.
Ride-hailing, I think, allows a service provider to become a platform on top of which you can put layers. Go-Jek is a good example. In Bangladesh, it is likely that a few ride-hailing companies will try to build layers the examples of which we have already seen.
While Pathao is in an extremely good position in this space, competition is likely to grow in the near future. Moreover, this is a complex space with a lot of overlap in terms of investments and all. For instance, Softbank has investments in Ola, Grab and now Uber as well as in Didi. There is a sign of strategic alignment.
Having said that, competition seldom kills a business. Pathao has built a brand, a good service and has scaled as well. The only challenge I think is the market.”
I explained the nature of ride-hailing business further in Pathao Launches Pathao Food, Why Pathao Food, Pathao’s Leverage and The Business Of Food Delivery:
“Pathao offers ride, both bike, and car; it has a logistics operation having hubs in different areas in Dhaka, Chittagong, Sylhet, and Rajshahi where it basically serves ecommerce companies; it offers a parcel service, mainly on demand delivery service which you can avail for sending documents, accessories, packages and even gifts; and now it has launched Pathao Food which is to some extent is an extension of its existing logistics and parcel service.
The company had a Pathao Mart service that it killed for unknown reasons. My guesses are either because of low traction or technical infeasibility with its existing infrastructure or for conflict of interest with the existing ecommerce partners whom the company has to woo for logistics business, at least for now.
If you pay close attention you will see that all of these services are similar if not same in nature: logistics service – taking people from one place to another and taking products and food from one place to another. There are intricacies and dynamics of each service are different but theoretically, they are not much different.
Another key characteristic of all these services is that it makes Pathao even more powerful as an aggregator and make its customers reliant on it for more than one reasons.
Many people consider Pathao (MUV and similar ride-hailing businesses) to be a taxi service or a mere transportation app or a logistics company, (this has happened with Uber as well). But to my understanding, Pathao (and other similar services) is all of those things combined and more.”
Again from Pathao Launches Pathao Food, Why Pathao Food, Pathao’s Leverage and The Business Of Food Delivery:
“This is why Uber is valued at close to $70 billion and ride-hailing startups across the globe continue to raise a staggering amount of money.
Pathao (and other similar businesses) is building thus owning an important infrastructure of our physical world that too at the intersection of online and offline.
These dynamics put it in an impossibly good position to explore many other nodes that have a connection with its core business. I hope to explore these areas in more details in a separate piece, this is about Pathao Food.”
The fact that Pathao or MUV or any ride-hailing platform for that matter is a ride-hailing company, logistics company, and food delivery company, all at the same time, calls for a different kind of policy thinking to regulate these companies.
Power dynamics in Ride-hailing: Platform Vs Drivers and Riders
Ride-hailing is a demand-driven market and in a demand-driven market, it is not the supplier who maintains the upper hand, rather the one who controls the demand controls everything.
In ride-hailing, the platform such as Uber, Pathao, MUV controls the demand meaning the customer interaction thus have the power to dictate the terms of the business.
Let me explain. For instance, in Dhaka there are two ride-hailing companies, hypothetically speaking, company X and company Y and drivers and riders depend on these two companies for rides, albeit for entirely different reasons - drivers for earning money, riders for transportation.
Essentially, drivers follow the riders, wherever there is a rider, a driver will go to serve him/her because that’s how he or she gets paid. This means any company that can attract more riders can also attract more drivers and at the same time, more rides means more liquidity of the cars and bikes and thus more rides for the bikers and better service for the riders.
Now, if you pay attention, it does not matter how many ride-hailing apps you use as a driver, you can serve riders from only one app at a time. Every time you take a rider from company X means you can’t serve a rider from company Y. When these numbers for company X continues to grow, the same numbers for company Y essentially diminishes.
This is why it does not matter how many apps a driver uses for finding riders, he/she can’t serve more than one customer at a time.
This is also the not-so-obvious network effect of the ride-hailing business that enables a kind of winner takes it all reality where it is not essentially more drivers bring more drivers, it is a slightly different, more riders bring more drivers and vice versa. This is one dynamic.
The other dynamic is that drivers don’t decide fair or any other important component of the business at all, albeit this is in the long run when people are already used to taking ride-hailing as the primary mode of transportation, because they don’t own the customer interaction and don’t control the demand, ride-hailing companies own the demand as well as customer interaction.
If the platforms see a point in changing the rules of the game, they can easily exclude a driver, punish a driver or take measures against any other stakeholder involved in the business. Now the matter of concern is that should we allow this sort of power to any one platform? And if so what should be the mechanism that we can use for making sure that the power is being used justly?
Tech, Aggregator and Technology Policy
A rather light take on the limitations of the approved guidelines from Guidelines approved to regulate e-hailing services by Saqeb Mahbub, Associate Partner & Rifat Rahman, Associate of Mahbub and Company:
“The most significant effect that the guidelines will have is certainly that e-hailing services, previously in a grey area of legality, have been recognized as being legal although subject to the stipulations in the guidelines.
However, it appears from a first look that the guidelines can be burdensome particularly for vehicle owners registered or willing to register with the services.
A vehicle owner is bound to obtain an “enlistment certificate” from the BRTA and facilitate a tri-partite agreement along with the service and the driver which presumably must also be filed with the BRTA. They are further restricted from registering more than one vehicle with a service, while multiples vehicles being registered with a service is quite commonplace at the moment.”
Tech is a different industry and dynamics are different here. Moreover, ride-hailing companies will eventually move into other spaces, as I mentioned earlier because as an aggregator of riders and drivers, meaning supplies and demands, and connector of the nodes of the physical world, they have the leverage and that is why these companies are valued at the billions.
I think we need to be mindful of these aspects.
In ride-hailing, the most important relationships are: 1) aggregator (company/platform) vs drivers 2) Aggregator vs riders. And a good regulation should rather pay attention to these two areas.
One of the key aspects of any good policy or regulation I think that it should pay enough attention to containing the power of the most powerful stakeholder of the said exchange so that everyone involved in the exchange gets their fair share. Now you can't do it because most of the time market changes all the time and regulators usually fall short catching up. This is also why policies or guidelines are so important.
One thing I find lacking in the approved draft is the clear guideline about how ride-hailing companies should deal with the drivers and what should be the exact relationship between the ride-hailing companies and the drivers. While the draft guidelines burdens car owners/drivers with a host of responsibilities, it does not talk much about what they get in exchange.
This probably does not matter now but it will be soon. For instance, who should be responsible when an accident happens? How are drivers going to be compensated in the long-term? Because a ride-hailing company does get commissions from a driver in exchange for making the connection between a rider and a driver and it gets rich from earning commission while not paying anything in exchange for the drivers. There are more, but this is the most simplistic way of looking at it and a matter that I think demands regulatory attention.
This is a critical question to ask today and it will be even more critical in the future once these companies become even more powerful.
Now, this is not a new question. This has been asked about Uber in many parts of the world and EU has declared Uber a taxi company, an announcement about which my feeling is, honestly, mixed.
However, what I believe is that Bangladesh is a unique market. Many things about our market are unique in nature and there are enough reasons to be concerned about this particular relationship, drivers, riders, and ride-hailing platforms, given the reality that over the years, ride-hailing services as aggregators are likely to accrue immense power.
1. Further reading on ride-hailing in Bangladesh including two market maps here and here.
2. Further reading on Pathao and its future here.
3. Further reading on Uber here.
4. Further reading on MUV here and Chalo here.