How Financial Services are Next in Line to Disrupt Mobility — I
From flexible vehicle subscriptions & embedded insurance — the latest disruption in automotive is coming from the safe & traditional financial services. The changing face of mobility is now making a clear impact on financial services, auto insurance & asset management.
Automotive mobility driven by a series of converging technological and social forces is changing dramatically. While much of the speed and trajectory of this transition is still a work-in-progress, it’s been estimated that by 2040 shared autonomous vehicles will account for more than half of road miles traveled in the US alone.
Which means, in the near future, urban travelers will be able to continue their journey in a shared AV by using other modes of transit, much as they do today with traditional transportation. But in the new mobility ecosystem, trips could offer intermodal travel on demand while offering integrated products and services in transit. And passengers will expect to be able to pay for these products and services speedily, reliably, and seamlessly, in the background, without having to take action at each step, unlike today.
Financial, payment, leasing and insurance services are all primed to meet this changing consumer need and is likely to be the next disrupting force in mobility.
A turning point for automotive financial services
According to Accenture, today when a consumer starts looking at their mobility needs, they tend to be far more informed than just a few years ago. 49% of the consumers indicated that they do all, or most of their research online before buying. However, within the automotive industry consumers do not experience the same ease they are used to from online shopping for other products.
To get a price indication for a new vehicle, one has to click through individual OEM websites and the option to buy directly online is rarely available. This indirect business model which involves processing through car dealerships, is increasingly seen as an obstacle to a purely digital customer experience. With a demography now used to 24x7 online shopping, this is perceived as inconvenient, and non-service oriented.
The Accenture study also showed that while 58% of customers use online portals to compare vehicle prices, 23% would prefer avoiding price negotiations. Particularly after a costly purchase like a new car, customers also feel that the need to wait for many months to receive the product is not in keeping with the times.
It’s no secret that the mobility market is currently undergoing a significant shift driven by increasing customers’ demand for flexible, and personalized digital solutions. And other studies have indicated that future customers will be less loyal to certain brands and will not care about the term of the offered mobility solution, whether it is labelled as a long-term rental or a subscription. Instead, they expect a solution tailored to their individual needs and wishes. This is demonstrated by the rising demand for leasing and subscription models which are likely to outpace traditional loans.
Such on-demand usage of vehicles has many use cases. A person who usually commutes to work by train, will now love to experience the comfort of an electric vehicle. But the customer will perhaps want to use a small and efficient EV for a few weeks during autumn and return it the minute his mobility needs change. Instead in winter, a skiing trip might be facilitated by the simple booking of an SUV with enough space for friends and ski equipment, without having to worry about anything except refueling.
Essentially, vehicles will be increasingly requested and returned based on short-term needs, without having to bear the residual value risk and long-term commitment.
A picture of the future of automotive finance
“In the long run, we will see that the customers who know the BMW product, will use the uninterrupted virtual buying process to help facilitate the delivery of the car, while new customers to the brand will enter the brand with the total experience BMW offers — driving, financing and servicing”, said Walter Schauer, President of BMW Financial Services in 2020.
The luxury OEM proposed a completely overhauled customer engagement with the example of how a BMW X5 will be sold in the coming years. The X5 with sport package and beige leather interior will be financed for 36 months with a $10,000 down payment for a particular customer. This will be based on the customer’s prior product preferences for beige interiors. The financing offer would be based on the calculated trend of former financing models the customer had chosen, and will not be a statical construction, but an adaptation to the changes, demands and possibilities of the customer. Especially for a typical BMW customer, who is self-employed, loyal to the brand and with over 30,000 kilometers per year, the financial offer will automatically adapt to the typical vehicle usage.
With one out of five young customers dissatisfied with the available ways of buying cars — often disappointed with the inability to buy online, the need to negotiate prices, and comprehend non-transparent financing options, after decades of stable growth, the automotive banking, financial and mobility services industry is at a turning point today.
In the next and concluding part of this blog — we will examine the shape of this future of automotive finance led by the already in-demand usage-based services, introduction of embedded financial products, the changing face of product liability with the coming of AVs, its impact on life expectancy and health insurance, and the impending transformation of mobility payment ecosystem in depth.