Business Technology

The security problem with the sharing economy

4 min read

10 October 2014

Buoyed by high-profile success, numerous online based consumer facing sharing operations have launched in the last few years. Uber is the obvious example of a company making headlines as it uses mobile Internet and GPS technology to disrupt and displace monopolies in the global taxi market.

Uber’s recent valuation of $18bn (£12bn; on 2013 earnings of just $200m) shows just how optimistic the stock market is about its ability to transfer value from old pockets to new. However, the controversy surrounding Uber’s operations also highlights the need to regulate the security of their services and the services of other businesses in the sharing economy.

Whether you call it the sharing economy, the peer economy or collaborative consumption, that’s the essential business case behind it. It exemplifies the disruptive force of the web, making a more efficient use of resources while stripping out layers of traditional intermediaries and replacing them with a lower-cost, online network – usually to cries of “foul” from any vested interests or displaced incumbents.

To guide them to the right seller, customers rely on ratings and reviews. A central tenet of the shared economy revolution is that it replaces licensing and regulation with peer review and user rankings, fostering mutual trust and building social capital. A low reputation score can drive poor-performing vendors out of business.

But does this self-policing approach offer sufficient consumer protection? If all that is being sold is a secondhand pair of sunglasses, then yes. But who takes responsibility if a rented Spinlister bicycle breaks and deposits its rider under a double-decker bus?

The licensing regime that controls who can operate metered cabs in London certainly shelters vested interests, but it also helps to ensure the security of drivers and passengers – and it’s this lack of verification and regulation of companies such as Uber which is causing such controversy. More often than not, business regulation is there to protect the public by making payments safe.

More peer-to-peer rental firms are realising they need to run thorough background checks, examining the driving licenses, credit histories and criminal records of both users and service providers. TaskRabbit, which hires people by the hour to assemble furniture and clean houses, needs this certainty: since this is effectively inviting strangers into their homes, it is essential that each applicant is verified to ensure they are who they say they are. They employ an electronic system to do so – which, though an improvement on Uber’s revolving door policy, still connects amateurs with potentially vulnerable consumers.

Sharing start-ups are also butting up against intractable local, national and international regulations. London’s judges have yet to rule on Uber’s legality in the UK capital, but the application is now banned in Barcelona and those that dare to use it in Brussels face a €10,000 (£8000) fine.

Will challenges like these cripple their business model? It’s more likely they will adapt and learn. Services like real-time electronic ID checking help them tick the legal compliance and user security boxes – but we’re not there yet.

Whether it’s paying taxes, arranging sufficient insurance cover or checking for money laundering, new economy operators are finding they can’t entirely break free of old economy restrictions. It looks like the future of business could be more evolution than revolution after all.

Glenn Porter is general manager at International Identity Verification at GBGroup.