It may not yet be apparent, but we are on the cusp of a seismic change in our relationship with the automobile.
This change will have significant implications for stakeholders in the banking and payments landscape. The Internet of Things, artificial intelligence and blockchain are already quietly making their way into the dashboard and under the hood. Within a decade, such technology is set to radically transform driving from a singular activity in moving from point A to point B, to an opportunity to safely multitask and even to completely disassociate from the road itself.
Going the distance
The average American commute took 26.4 minutes in 2015, creeping up 24 seconds from the previous year, according to the U.S. Census Bureau's most recent American Community Survey.
For those commuting by car, the activity of driving requires active concentration and multitasking is limited to little more than changing the dial on the radio.
However, the automotive industry sees a significant opportunity in transforming drivers into passengers and opening up a plethora of other actions that they can engage in on the go.
The National Highway Traffic Safety Administration defines six levels of car automation, from Level 0, where a human controls all the critical driving functions, to Level 5, where the car drives itself from departure to destination without human intervention.
Research from Loup Ventures estimates that 98,000 fully autonomous vehicles (Levels 4 and 5) will enter the market in 2020, which is when the transition to self-driving will start to take shape.
Beginning in 2028 Loup forecasts an influx in demand for Level 4 and 5 automobiles, with shipping going from 98,000 fully autonomous vehicles in 2020 to 96.3 million in 2040, a 41.2% compound annual growth rate over that time frame.
The car as storefront
While financial institutions may assume that they have some time to get their heads around this new automotive paradigm, now is the time to act. Even without autonomous cars taking over the roads today, in-car technology is already adding the ability to pay for tolls, parking, gas and drive-through orders, with voice assistants enabling drivers to multitask without taking their eyes off the road.
While many of these functions can be enabled using mobile phones and travel apps such as Waze, the smartphone-tethered experience is not necessarily driver friendly. Automotive manufacturers are working to upgrade the experience, to one that is safer and more seamless.
For example, at the CES show in Las Vegas last January, Visa announced a proof of concept for in-car payments in conjunction with Honda, demonstrating fuel purchases (with Gilbarco Veeder-Root gas pumps) and parking payments (with IPS Group smart parking meters). Once the car is parked next to a pump or meter, drivers are notified that they can pay from their car, facilitating the transaction via a screen on the car dash.
Similar types of technology have already launched commercially - in February, Jaguar announced a U.K. initiative with Shell gas stations to enable in-car payments. The feature requires installation of the Shell app onto Jaguar's in-car touchscreen display. Once installed, payments can be made via PayPal, Apple Pay or Android Pay. Of course, the driver still needs to leave the car to pump gas.
Where banks take the wheel
For issuing banks, this is just one more scenario where top-of-wallet dynamics have no relevance as the card on file is invariably the default. In the short term, issuers need to be agnostic and open to all variants of the digital wallet to ensure that they fit whatever preference consumers have.
"The play for banks is to enable their payment cards in every available wallet," said Thad Peterson, senior analyst at Aite Group. "It's going to be a card-on-file game, but the delivery vehicle will be some form of wallet, whether proprietary such as a General Motors wallet or generic such as Apple Pay."
Current generation in-car payments don't necessarily disintermediate traditional payment players from the experience. However, some recent developments may be more disruptive. A May 2017 report by Celent titled "Payments and the Internet of Things" describes the ultimate stage of IoT commerce as "semi-autonomous economic agents" that are capable of acting independently to optimize their own, their owners', and their clients' objectives. In an automotive scenario, this could be self-driving cars using advanced AI to independently transact on the behalf of the owner — fulfilling tasks such as negotiating with toll road services for faster passage, purchasing gas or electricity, paying for servicing and so on.
Banks might need new roads for this traffic
This presents an opportunity for financial institutions to issue payment accounts directly to vehicles. However, the current infrastructure for cards might not be capable of supporting what is likely to be a constant stream of micropayments. A more appropriate mechanism may be blockchain technology, which was originally designed to support bitcoin payments.
While semi-autonomous agents sound like science fiction, key stakeholders in payments, technology and the automotive industry are already making this a reality. UBS, ZF Group (a German car parts maker) and the technology giant IBM announced plans in September to jointly provide an open automotive transaction platform for mobility services called "Car eWallet," based on IBM Blockchain technology.
This makes it possible to synchronize the information of each participant in the network in a reliable and unchangeable data record. At the same time, it ensures that users have access to only the information that they are permitted to see and use, making near real-time transactions possible without a trusted third party. The platform has the potential to radically change e-commerce between manufacturers, suppliers, service providers and customers, according to the companies behind it.
What may be reassuring about this initiative is that a major financial institution is still part of the value chain and it can be expected that car owners will continue to entrust their transactions to entities that they are familiar with. And financial institutions, while not vociferously plugging their in-car initiatives, are known to be working behind the scenes.
"We've certainly been working on pilots within the automobile space to enable connected car type payments," said Dominic Venturo, chief innovation officer at U.S. Bank. "These haven't been publicized as they are still in the lab stage, and the details are still confidential."
However, the threat of disintermediation for banks is legitimate - most car manufacturers have their own lending arm and extending their relationship for payments not just at the point of vehicle purchase but throughout the entire life of the vehicle could present an attractive revenue stream.
"There are auto manufacturers already moving to subscription models where most of the operating cost is covered under one payment," said Venturo. "While we haven't seen any yet that include the variable expenses like tolls and parking, it certainly is something companies of many types could explore."
Banks and payment providers need to remain relevant as autonomous vehicles take over the roads, and should proactively consider the many opportunities that in-car payments offer in areas such as cross selling and marketing, in increased data on customer behavior and in new innovations such as accounts for semi-autonomous agents.
Start with stepping up awareness of developments in the auto sector and follow up with action.
