Uber, Surge Pricing, and the Impact on Supply Chain Finance

Uber is perhaps the one of the best companies out there applying behavioral science to address market conditions to balance demand and supply. Since Uber must be conscious of both drivers and customers, as it controls the supply of cars and needs to provide demand to drivers so they can make their daily income requirements, they have turned to sophisticated behaviour science.  When demand is high, the company turbo charges as much as 9x the normal ride price.  Riders hate it, but they continue to use it (I guess convenience and bad taxi service really matter).

I am wondering if it’s time for supply chain finance to consider dynamic pricing or is the psychology not the same.

You see, there are platform providers out there that are sitting on mountains of data. They use this data to convince prospects and existing clients of the benefits of these programs with their supplier base. I am talking about what PrimeRevenue does with SCiMap or Taulia and Greensill do together to market SCF+.

But what if vendors became much more scientific around pricing money based on value? For example, during quarter end window dressings, retiring receivables early may be much more attractive for suppliers.   Perhaps the price of money can reflect that.  Or when there are spikes in cash flow needs, say during an upcoming debt retirement or funds required for M&A.  Or perhaps fewer sales came in the quarter than expected to meet cash outflows, and cash is needed.  Or a big account is delaying a payment.

Then there is the opposite. Not just squeezing suppliers for every last drop, but also increasing usage of programs by offering money at better rates.

Perhaps this is far-fetched. I know C2FO’s model is built on having suppliers bid for cash based on their own internal cost of funds, whether that’s a factoring rate, a credit card rate, or a libor + bank line.  Whether theory works in practice I don’t know.

But for most dynamic discounting solutions, you are stuck with an average discount of 1% to 2% over 25 to 30 days, which translates into 20%+ APR.

How elastic is the demand for transactional finance? Maybe there is something to this concept of “surge” pricing.  Perhaps even one of the vendors has done some work in this area.  I know Uber has.

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p.s. Last week, a judge ruled Uber can be added as defendant to a surge pricing lawsuit


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