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Grab to introduce variable commission rate, says move will make driver compensation fairer

From Nov 14, ride-hailing giant Grab will introduce dynamic commission rates for drivers who use its platform so that the distance travelled and time taken to pick up passengers are taken into account when calculating their earnings.

The move, which comes amid an ongoing driver crunch in the ride-hailing sector here, will ensure that its drivers are more fairly compensated and less likely to cancel less favourable bookings, said the Nasdaq-listed company on Tuesday.

This will not impact how passenger fares are calculated, it added in a set of questions and answers posted on its website.

Grab currently charges its drivers a fixed commission rate of 20.18 per cent per trip, including goods and services tax.

With the new driver compensation structure, this fixed commission rate will be replaced by a variable commission rate that will change from trip to trip.

This new “service fee” may be lower when drivers have to travel further and spend more time getting to a pick-up point, Grab said.

Conversely, the service fee may be higher if the driver is closer to the pick-up point and spends less effort getting there.

The Straits Times understands that during a series of trials that Grab conducted since April, the service fee charged to participating drivers went as high as 25 per cent and as low as negative 10 per cent with the new system.

A negative service fee in this case means a driver will earn more than what a passenger is paying for the trip.

Grab said the higher service fees that are charged to drivers with closer pick-ups will be used to offset the higher fares paid to drivers who complete bookings with longer pick-up time and distance.

The new driver earning structure will apply to all of Grab’s transport services, except for GrabShare, Hire, Standard Taxi, GrabHitch and GrabCoach.

Grab said it will improve the new structure based on feedback before rolling it out to the rest of its transport services. More details will be shared when ready.

Grab noted that out of the roughly 300 drivers who participated in its trials earlier in 2023, 98 per cent either reported an improvement or no change to their earnings.

During the trials, it observed a 7-percentage point improvement in the acceptance rate among drivers for trips with pick-up distances more than 3km. This, it said, would have contributed to a more reliable service and a better passenger experience.

Grab said its new compensation structure is aimed at addressing a major issue among drivers.

The company’s current fare structure, which is based on the time and distance that drivers have to travel between a passenger’s pick-up and drop-off points, does not account for the time and effort that drivers take to pick up passengers, even though this part of the journey adds to their costs.

Because of this, its data showed that under the current structure, drivers are more likely to cancel a booking if they thought the pick-up distance or time was too long.

While Grab drivers are currently incentivised to accept trips with far pick-up points through a $3 cash bonus if they have to travel more than 3km to reach the passenger, this is a flat bonus that does not change even if the distance to the pick-up point far exceeds 3km.

Drivers have complained about missing out on the $3 bonus by the smallest of margins. In one reported case in February, a driver had missed out on the far pick-up bonus by mere centimetres.

With the new structure, this far pick-up bonus will no longer apply.

Grab said: “We believe the new driver fare structure is a better solution that is fairer for our partners, as they are now compensated for their full end-to-end journey.”

Its announcement comes less than two weeks after rival Gojek made changes to its own driver commission rate, lowering it from 15 per cent to 10 per cent starting from Nov 1 until at least the end of 2024.

Analysts have said that Gojek’s move to cut its commission is likely an attempt to attract drivers onto its platform, and this is likely to intensify competition.

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