Blockchain @ Auto Finance - Deloitte
Blockchain @ Auto FinanceHow blockchain can enable theFuture of Mobility
ContentEnvision the future04Setting the scene05The fundamentals of blockchain06Future of Mobility – impact onautomotive and captive finance08Leveraging blockchain – selected use cases10Conclusion14
Blockchain @ Automotive Finance Enabling the Future of MobilityEnvision the futureIt is 2030. In the western world, direct car ownershiphas declined radically, as sharing solutions dominate theecosystem. Mobility operators own and manage largefleets of 24/7 connected vehicles that users can easilyaccess through their wearable devices or smart-phones.On the fleet manager s books, a car is nowan asset that needs to be used constantlyin order to bring significant returns. Inaddition, providing a frictionless experience to users and reducing operatingcosts is essential. To achieve this, the caris selfmanaging in providing the service,conducting its own maintenance, and handling its own P&L, financing, and paymentsindependently.During its whole lifetime, the vehicle sstatus is tracked on a blockchain in whichthe parties concerned can verify the relevant information regarding the car at anytime, in an environment that enhancestransparency while guaranteeing privacy.In this way the fleet manager can verifyall transactions affecting the car and alsoits financing status. The car user can besure that previous renters have properlyreleased usage rights without necessarilyseeing who the previous user was, or whathe or she did with the car.Autonomous cars are equipped with fullyfunctional mobile payment wallets thatare connected to the wider financial andtransactional system, thanks to blockchaintechnology. This enables the cars to billendcustomers directly for the use of thecar and for the various services they mayhave used (e.g. drive-in, in-car entertainment, road tolls, on-demand insurance).Electric cars in the fleets will be able toleverage usage behavior to recharge during periods of low use. Moreover, the carsknow their maintenance frequency and independently schedule and carry out theirappointments with the service providers,reducing downtime and revenue losses.Blockchain @ Automotive Finance Enabling the Future of MobilitySetting the sceneUp to 2013, most people who had heardabout blockchain were avid speculatorstrying to monetize the high volatility ofthe crypto-currency Bitcoin. In recentyears, blockchain has become one ofthe hottest technologies in C-suitesglobally, with more than US 1.7 billionof investment in the last three years.Although the financial services industrywas the first mover, other industrieshave quickly followed, either sensingthe huge opportunity or at least worrying about being left out by innovativestart-ups.Use cases have emerged in disparateareas from the basics of payments solutions and identity management to morecomplex uses. Travel operators or evenAirbnb hosts can reinvent room bookingprocesses thanks to smart locks thatautomate payments. Chemical, pharmaceutical, and food companies can trackperishable goods and check their preservation status along the chain of custody.Artists and media operators can publishcopyright material directly on the blockchain to enable seamless micro-paymentsfor every download. And the list goes on.Up to the present, one of the industriesthat has only scratched the surface ofwhat blockchain can mean is the automotive and captive finance industry,currently focused on the unprecedentedchanges already storming to the core oftheir traditional business models. Butcar sharing, autonomous driving, andthe countless other exciting challengesthat the automotive industry is facingshould not obscure the impact that blockchain can have for the whole eco-system.This involves not only OEMs (Original Equipment Manufacturers) and end-consumersbut also dealers, financers, and ultimatelyanyone who deals with mobility services.Increased useIn Q4/16, the daily bitcointransactions increased by80% YoY to 225k per dayBlockchain will also make it possible forthe car to be completely autonomousfrom the financial point of view.Venture capitalOver US 1.7 billionin investments overthe past 3 yearsGlobal marketThe worldwide blockchaintechnology market is estimated togrow with a CAGR of 61,5% to2.135,5 Mio in 2011Research2,500 patents filedover the last 3 yearsCentral banks90 central banksengaged in Blockchaindiscussions worldwideConsortium efforts90 corporations have joinedblockchain consortiaFigure 1: Key facts on blockchain (Deloitte analysis, 2017)0405
Blockchain @ Automotive Finance Enabling the Future of MobilityBlockchain @ Automotive Finance Enabling the Future of MobilityDistributedledgerDigital123Fewer thirdparties48Operates‘trustless’Updated nearreal timeChronologicaland timestamped7Irreversible andauditable56CryptographicallysealedFigure 2: A blockchain’s key characteristics (Deloitte analysis, 2017)The fundamentalsof blockchainDeloitte has already explored in depth the mechanicsof blockchain in several publications. This publicationwill therefore just give a quick overview of the maincharacteristics of blockchain, while referring avidreaders to more specific publications1.1Blockchain. Enigma. Paradox. Opportunity (Deloitte, 2015);Bitcoin Fact. Fiction. Future (Deloitte University Press, 2014)06A blockchain can be defined as a digital,chronologically updated, massively duplicated and cryptographically sealed recordof data transfer activities within a networkof participants. A few of the most relevantfeatures of blockchain technology are asfollows: Blockchain has created unprecedentedscarcity in the digital world: a “digitalobject” is directly transferred to therecipient, without any possibility for thesender to retain it, forge it or retransferit at will Blockchain permits the secure transfer of digital assets directly from pointto point, without the need for a trustedintermediary Blockchain transactions are irreversibleand immutable, and do not permit external censorship, as long as the networkis strong and secure enoughLeveraging its decentralization paradigm,blockchain technology has the potential tosolve many trust requirements that todayburden a large number of business processes and interactions, by clearly recording allhistorical and current ownership rights ofa given asset at any time without requiringany intermediaries. This is why blockchain’spotential for disruption and the reductionof costs is enormous: with the appropriateset-up, the technology can be applied to avariety of business areas, and the automotive and mobility ecosystem is no exception.07
Blockchain @ Automotive Finance Enabling the Future of MobilityBlockchain @ Automotive Finance Enabling the Future of MobilityFuture of Mobility –impact on automotiveand captive financeLike many other industries before them,OEMs and their captive finance companiesare facing – in addition to the overall trendtowards digitalization – two parallel disruptive trends. One is a change in customerdemand from ownership of the car to theuse of it (e.g. car sharing and ride hailing).The other one is the emergence of autonomous cars.3Deloitte has produced a series of ThoughtLeadership papers on this “Future ofMobility” by deriving four scenarios thatcould coexist. This publication does notelaborate on these developments in detailand directs the interested reader towardsthese publications.The driverless revolutionA new age of accessible autonomy180K 240K 70KLifetimevehicle milesincreaseUtilizationper clesFamiliesconsolidatetheir vehiclesLifetimevehicle milesincreaseUtilizationper yearincreasesLow-cost,smallerelectric podsMajority of salesshifts to fleetmanagersAsset efficiencyAssistVehicle Control4151K240K70KDriver13Mix shifts towardstrucks, SUVs, sportscars, trade vehiclesTraditional vehiclelose market shareLifetimevehicle milesunchangedUtilizationper yearunchangedDriver-drivenfleets with variedvehicle mixSales to drivercontrolled fleetsdecreases as AVsproliferateLifetimevehicle milesincreaseUtilizationsimilar totoday’s taxifleetsPersonal1Incremental changeSharedVehicle OwnershipA world of carsharing2Automotive companies have always beenproviders of mobility. Their traditionalbusiness model appeared fairly simpleand included the production of the car bythe OEM and the sale of the car – mostlyto retail customers – through a physicaldealership network. Captive finance companies stepped in to provide sales financing to customers to an extent where – atleast in the western world – more than75 percent of new car sales were enabledby credit finance or leasing, with captivefinance companies having the major shareof this market. This resulted in these companies contributing an average of 20% to25% to their groups profits, while on average half of the total assets of Europeanautomotive groups consist of their captivefinance companies.This business model is being challengedmore and more. Already today two thirdsof the roughly three million new car salesin Germany are going to corporate customers, with most European markets showinga similar trend. Within this corporate channel the relevance of fleet managers eitheras subsidiaries of banks or as independentplayers is increasing continually. Combinedwith the increasing demand for autonomous and shared fleets, this businessmodel change poses a huge threat to automotive companies, who risk losing, tomobility providers and fleet managers, thecustomer access they traditionally held.These new players can leverage their sizeand bargaining power to obtain discountsfrom auto suppliers and influence buyingbehavior and brand selection by the endcustomer.Several automotive companies havealready reacted and are increasing theiractivities in the fleet management environment to avoid being reduced to therole of hardware providers. In the end, thewinners in this race for customer contactwill be those companies who are able toprovide a seamless customer experienceat a limited cost.Blockchain can become the enabling technology for automotive companies to reachthis goal and to maintain a key role as thedirect provider of mobility services to endcustomers.Figure 3: Future of Mobility: potential states; source: The Future of Mobility (Deloitte University Press, 2016)0809
Blockchain @ Automotive Finance Enabling the Future of MobilityBlockchain @ Automotive Finance Enabling the Future of MobilityLeveraging blockchain –selected use casesBlockchain already enables a number of use cases indiverse areas of the automotive ecosystem. This publication provides an overview of the most promising areasfor automotive and automotive captive companies.Identity managementIn the context of an increasinglysharing-oriented environment, identitymanagement is going to be crucial for thesuccess of the newly emerging businessmodels and there are two main aspectsto identity management in the future ofmobility servicing.On the one hand, fleet managers and service providers will want to gain as muchinformation as possible on users, both inthe onboarding phase and during vehicleusage. This will be crucial in enablingcustomized offers on auto financing,insurance, spot offers, and even for anaccurately discriminated fleet access:serial car wreckers or new drivers, forexample, will not be able to access thehighend models of a fleet. On the otherhand, user awareness of dataprivacy isrising continually and the monetization10of valuable client data is likely to changeradically as users are increasingly carefulabout sharing data without getting valuein return.Blockchain can intervene on both sidesof the equation. Several digital identityplatforms based on blockchain arealready active in the market, with usecases ranging from authentication andcustomer on-boarding for generic services to know your customer (KYC) andanti-money laundering (AML) checks infinancial services. Most of these platforms are based on the principles of userempowerment and control and selectiveand secure transfer of sensitive data. It isnot hard to imagine the auto ecosystemheavily leveraging these solutions for fleetaccess and usage monitoring and vehiclefinancing and insurance.Deloitte s Smart-IDplatformDeloitte has developed a sharedSmart Identity platform that usesblockchain technology to challengethe traditional ways of provingidentity, by allowing users to createa universal digital identity andoffering new ways for individuals,organizations, and even devicesand objects to obtain and use verified identity credentials to transactwith one another. The graphic outlines the customer journey of thisplatform.1. Customer createsdigital identityrecord and seedswith initial data2. Trusted thirdparties verifyand endorsekey attributesDistributed ledger layer3. Customer sharesidentity info in theform of digitalattributes /credentials4. Automated duediligence (KYC) checksare undertaken byverifying suppliedinformation againstthe blockchain5. Customersrecord updatedwith any newcredentials6. Serviceactivated7. Ongoing dataquality and AMLmonitoringBank 18. Changes to customerinformation can bemonitored and responded to in real timeFigure 4: Deloitte s Smart-ID platformUsers can create and store identityattributes such as an ID reference,driving license, or passport, whichcan be endorsed by third parties toform verifiable credentials for usein any digital interaction. The platform offers vast opportunities forthe automation of identity-linkedprocesses such as customer registration or KYC.11
Blockchain @ Automotive Finance Enabling the Future of MobilityBlockchain @ Automotive Finance Enabling the Future of MobilityPaymentsMobility services are increasinglycombined with financial activities. Evenin today’s property-based model manyaspects and moments of car usage arelinked to transactional activities. A sharingoriented ecosystem will additionally needto provide automobiles with transactionalindependence. Any automobile must becapable of managing the transactions thattake place while consumers are using it,both to send and to receive funds.There are therefore many prototypes leveraging blockchain technology already underdevelopment to equip the car with a walletwhich will help to increase the ease of itsuse. Sample use cases permit an electriccar to connect with the charging stationand directly settle the charges and enablethe car to receive direct payments for theusage of the car in a sharing environment.The enhancement of having a wallet directly embedded in the vehicle will have amajor impact on future business models:the car might be enabled to independentlypurchase services during usage, whetherfor road tolls on the highway or for driveins and on-demand insurance such as“pay per use” and other on-demandservices. In addition to this, the low transaction fees when using a blockchain canalso open up the possibility of exploringnew business models based on a new,cost-effective concept of micro-paymentssuch as in-car sales of media content oradditional services.12Property / Car historyBlockchain permits the trackingof physical objects in time and place,and a market traditionally opaque suchas the automotive market could benefita great deal from this. Blockchain canpermit tracking all information regardinga car (mileage, accidents, inspections,changed parts, etc.) in a secure andreliable network that can be accessedby any potential buyer. There wouldbe an unprecedented incentive to betransparent, as a market with better andmore accurate information would bebeneficial for all players involved: owners,producers, service providers, financers,and insurers would all share the same setof information and be able to drive downcosts and increase service throughout thecar s lifespan.In particular, financers of car purchaseswould benefit enormously from such anaccurate source of information, as thevaluation of used cars would be muchmore accurate, allowing for better estimates of residual values and consequently resale values.Some European countries are alreadyanalyzing whether blockchain could helpto digitalize official car registration andthe attendant document management.LoyaltyBlockchain technology can havean impact on the top and bottom lines ofloyalty programs, by offering advantagesin their operations as well as grantinghigher end-customer satisfaction. Operational benefits from using blockchaintechnology compared to “traditional”loyalty programs include faster transactions, easier integration of external partners, and the simplified incorporation ofother loyalty programs. Moreover, blockchain and smart contracts permit theprogramming of rules into the tokens/reward points systems, enabling – forexample – the seamless exchange ofpoints from different partners in thesame loyalty scheme.These higher flexibility characteristicsof the program will increase the ease ofcustomer onboarding and more activeuser engagement in the loyalty platform,thus ensuring a closer relationship withthe end-customer.Back-office – Finance andOperationsBlockchain has been shown to improveprocess efficiency, especially in managingthose processes which include multipleplayers as well as intermediaries andwhere significant exchange of information, data, or cash flows is required. Asample of areas where use cases andprototypes are already active and canbring significant efficiency include: Global intra-company paymentsand group treasury/ reconciliations(see focus box) Custody of vehicle title, especially forcross-border and fleet management Secure digital signature for globalexchange of sensitive documents Digitization of paper-intensive negotiation processes (e.g. financing contracts for large fleets)Global paymentsuse caseThe transfer of assets has alwaysbeen an expensive and slow process. This is particularly true forcross-border payments. Blockchaintechnology is able to speed up andsimplify this process while alsoreducing costs significantly.Deloitte has built a working prototype in which customers can sendmoney across borders despite onlyknowing the receiver’s phone number or email address. The goal wasto show how blockchain and otherexponential technologies (e.g. cloudor distributed databases) canremove the friction that exists intoday’s banking equation. Automation of processes with alow need for human intervention(e.g. standardized decisions oninsurance reimbursements)Blockchain is not yet suitable for morecomplex processes or for processes witha higher need for human intervention,but the evolution of the technologyneeds to be watched, as the potential forfurther and more extreme automationis already present.13
Blockchain @ Automotive Finance Enabling the Future of MobilityBlockchain @ Automotive Finance Enabling the Future of MobilityConclusionThe Future of Mobility will be characterizedby a higher proportion of autonomouscars in shared fleets. This will imply that thecars are not only the platform for mobilitybut become digital ecosystems offeringvarious additional services such as in-carentertainment and location-based services,similarly to how smartphones work today.More and more competitors from otherindustries such as telecommunicationproviders, social media companies, ore-commerce platforms will compete forcustomer access within and around the car.Customer intimacy and loyalty, the abilityto collect, understand and use customerdata and also efficient processes will become even more relevant to success inthe mobility industry of the future. Majorrequirements to be successful in this newenvironment are to gain the trust of thecustomers and to provide the processesand technical infrastructure for a seamless14customer experience. OEMs and theircaptive finance companies can leveragetheir brands to provide a strong levelof trust that is superior to most of theirfuture competitors.Blockchain offers the technological potential to enable the required innovative business models and underlyingprocesses by leveraging a redefinedconcept of user-centricity based onthe new “decentralized trust” paradigm.Although the exploration of blockchainenabled use cases is still in its infancy,with the technology still on a steep evolutionary curve, the possibilities, especially in the key areas of customer identity management and payment solutions,are enormous.We at Deloitte are ready to accompanyyou on this exciting journey of discovery:do you want to shape the future with us?15
Blockchain @ Automotive Finance Enabling the Future of MobilityContactsSebastian PfeiflePartner Auto Finance LeadBerlinPhone: 49 (0)151 5807 0435spfeifle@deloitte.deChristopher LeySenior Manager Auto Finance StrategyFrankfurtPhone: 49 (0)151 5807 0727chley@deloitte.deLeo TackeSenior Consultant Blockchain InstituteMunichPhone: 49 (0)151 5800 3360letacke@deloitte.deMassimo FerrariSenior Consultant Blockchain InstituteFrankfurtPhone: 49 (0)151 5807 0434masferrari@deloitte.de16
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Blockchain @ Auto Finance How blockchain can enable the Future of Mobility. Envision the future 04 Setting the scene 05 The fundamentals of blockchain 06 . On the fleet manager s books, a car is now an asset that needs to be used constantly in order to bring significant returns. In addition, providing a frictionless expe- .
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