Taxi Market Needs Digitalization

7 february 2018

The taxi market continues to grow vigorously and demonstrates positive trends, Analytical Center experts write. According to the completed research, from 2015 the market size in monetary terms grew by 14.2% per year to RUB 575 bn in 2017. The number of people officially employed in the industry in 2017 was 584,000 people; 117,000 more people were temporarily employed in this sector during the year, which makes up a total of some 700,000 taxi segment related employees. The number of drivers vs 2015 grows by 25% per year – based on this indicators, the taxi market outpaces many conventional sectors of small and medium enterprises.

The share of illegal taxis went down by 20% per year in monetary terms (RUB 75 bn in 2017, RUB 116 bn in 2015); by 13% per year in the number of drivers involved (82,000 people in 2017; 118,000 people in 2015) to not more than 15% of the total number of taxi drivers (current figures). Experts believe that the key drivers of reduction in the number of illegal taxis include the change in consumption breakdown (more and more people prefer to order a taxi to flagging down a car) and special rates offered by taxi aggregators for trips to/from airports and rail terminals, which, coupled with a strengthened control of illegal taxi operations in these areas, contributes to their lower profitability and drivers' switch to the legal segment. Legalization is boosted, among other things, by a higher total market share held by the aggregators using non-cash payment systems with a focus on legal taxi drivers, analysts note.

Today, the key market players are large aggregators of orders and taxi dispatch services: Fasten, Yandex.Taxi, Uber, Maxim, Gett Taxi. So far, according to experts, all of the above market account for less than one-third of the market (32.8%), but as the penetration of mobile Internet continues growing both in small- and medium-sized towns of Russia, the number of online orders will grow, too. Taxi trips have become increasingly affordable to population and more attractive relative to other means of public transport, thus easing the burden on the latter. For example, from 2014 to 2017, the average price of a taxi journey in Moscow went down by almost 35%; pick-up time decreased from 10 minutes to 4 or 5 minutes.

Work as a taxi driver is both primary and temporary employment, sort of a "buffer" to earn income while searching for the main job. Some individuals combine their main job with a flexible schedule or part-time job with taxi driver's job. Drivers for whom taxi driving is not the main job account for 40% of total drivers country-wide. Analysts call the taxi segment a promising source of self-employment for population as this job does not require any special education or special skills (apart from a driving license) and can generate quick and legal income. However, the growing popularity of taxi driving has rung up retail dealers in the business of distributing taxi licenses in the market though not being taxi pools. The business model of such businesses relies on the challenges associated with obtaining licenses and long application processing time. Possible drivers of self-employment in the taxi segment include a simplification of license obtainment procedures and duration, as well as the relocation of income from "intermediaries" to drivers.

The taxi market builds around digital platforms, which affect it significantly. That said, adequate regulation is an important element of a competitive digital economy. More specifically, a clearer introduction of digital platforms into the legal framework necessitates launching paperless accounting and digital controls. The Ministry of Transport of Russia considers implementing automated distance health check and vehicle inspection with the results to be saved in the AIS. Currently, the lack of e-logs and unified databases for mandatory pre-shift, pre- and post-journey health checks of drivers complicates the implementation of effective controls, thus creating a potential risk of corruptive practices and fraud. The necessity of completing a paper log makes the process more labor-intensive and limits the throughput of the procedure, research says.

As for the inspection of taxis, according to the State Traffic Safety Inspectorate, car accidents involving cars which have been in operation for more than 5 years make up more than 90% of accidents involving motor vehicles with technical malfunctions. Taxi statistics is similar, evidencing the need for a more thorough condition inspection for cars older than 5 years. Moreover, resources for such inspection can be accumulated by lowering the frequency of inspections of cars younger than 5 years as they account for less than 10% of total car accidents, which is the lowest percentage. In turn, despite the growing number of accidents involving taxis (from 1,166 in 2015 to 1,604 in 2017), the number of car accidents relative to the total number of valid tax licenses has declined (from 0.31% in 2015 to 0.28% in 2017). It is noteworthy that large market players initiate their own steps to improve journey safety for their passengers. For instance, Yandex.Taxi, Taxi-Maxim, Wheely offer insurance programs for drivers and passengers in case of a car accident without raising the taxi fare.

Experts believe that the future development of the industry will be associated with the digitalization of controls and growing self-employment.

Taxi Market Study
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