Uber’s China operations have had its share of problems recently, and with its latest "ghost driver" scam getting widespread media attention, it appears the company will only continue down its turbulent track.
In the past week, it was widely reported that Chinese passengers were encountering "ghost drivers" on the Uber app, which automatically assigns drivers to passengers. The drivers would never arrive to their customers, or answer their phones, yet customers contacted by Forbes complained that they were still charged for a short ride, typically around 10 yuan.
“I had two such encounters in one day in September,” said Stephanie Yan, a Shanghai-based marketing executive. “The drivers’ profile pictures all looked zombie-like, but they never showed up.”
Yan and others say Uber refunded them after they reported the incident. But recently, thousands of similar incidents are happening nationwide on a daily basis, according to Zhang Yi, head of Guangdong-based consultancy iiMedia Research, which collects data on and surveys passengers in China’s online ride-sharing industry.
“This is a large-scale attempt to scam passengers,” Zhang says.
So far, it appears the "ghost cars" scam hasn’t been reported by other ride-hailing platforms in the country, which has lead many analysts to point the finger at Uber China's internal management shuffles and regulatory reviews that have weakened the team in China.
For years, the company was losing roughly $1 billion a year on its China operations without grabbing significant market share, before being acquired by local rival Didi Chuxing in August. Uber has also grappled with sophisticated scamming schemes where fraudsters created a large number of virtual rides to cheat the company of driver bonuses. Now less than two months after Didi’s takeover, the situation at Uber has only been exacerbated.
This can be chalked up to a loss of senior executives, says Wang Xiaofeng, an analyst at advisory and research firm Forrester. A good number of anti-scam professionals are moving to Didi or leaving Uber for other companies, giving fraudsters a chance to exploit the company’s system, she says.
The head of Uber’s anti-fraud team Yin Zuoning, for example, joined Yidao in early September. Yidao is a ride-sharing platform affiliated with Chinese technology company LeEco, which operates Shenzhen-listed video streaming site Letv. A Yidao spokeswoman said other senior Uber China executives also joined the company, but she declined to name them.
“It was difficult to scam passengers when the Uber team was intact,” Wang says. “Now the company is in transition. Internally it no longer has good organizing capabilities to sort these frauds out.”
An Uber spokeswoman said the company “has taken immediate actions and banned these reported individual fraud accounts.” A Didi spokeswoman says these cases are “rather sporadic” and both companies have worked together to lock these accounts and add enhanced security features.
Uber requires drivers to upload profile photos, driver licenses and insurance papers as well as complete online tests during the application process. It appears the digitally altered faces were able to pass the facial recognition program runs during its application process to verify drivers' identities says Wang Chenxi, an analyst with Beijing-based consultancy Analysys International. She believes the program is likely have loopholes that were unable to recognise the slightly distorted features of the profile pictures.
Only adding to the problems, earlier this month, China’s Ministry of Commerce also opened anti-trust investigations into the two companies, after receiving complaints that the Uber-Didi merger didn’t follow the country’s anti-monopoly laws.
Didi, which received a $1 billion investment from
“The investigation adds further uncertainties for Uber employees,” iiMedia’s Zhang says. “The team is unstable, so it is easier for problems to appear.”
There is also no clear governmental regulation on how ride-hailing platforms should police their drivers. China legalized the sector only in July, with authorities requesting companies to verify and test drivers before putting them online. Enforcement, however, is in the hands of local governments, many of which are drafting their own rules following the central government’s July guidelines. This leaves consumers vulnerable due to a lack of legal protection.
Ride-hailing apps haven't been immune to sophisticated fraud ploys in the past. In January, police in Hangzhou took two Uber drivers into custody after they scammed 140,000 yuan in fares from the site. And in May, a Beijing court sentenced two men to a respective eight months and a year in prison after they were caught creating fake rides on Didi, using a well-known scam called "click fraud". This scheme uses GPS location software to book several "phantom" rides, with the driver and an accomplice reaping benefits from subsequent bonuses on the faked rides.
Uber has said such false bookings amounted to less than 10% of its daily rides.
These most recent "ghost" fraud incidents, however, add to mounting dissatisfaction with the merged companies, which are cutting back subsidy spending as they seek profitability. Consumers are complaining about sharply rising fares after the deal. During rush hours and bad weathers, the cost of Didi and Uber can quadruple, according to iiMedia research.
This coupled with driver fraud are driving some disgruntled customers to smaller apps such as Yidao, Shouqi and UCar, analysts say.
“Everyone thinks that Didi and Uber are much, much more expensive than before,” Forrester’s Wang says. “Smaller sites are still giving out a lot of subsidies, which is what Chinese customers want the most.”
