How Financial Services are Next in Line to Disrupt Mobility — II
The boom in the financial technology industry has had rippling effects across the marketplaces including the automotive industry. The traditional business model is being upended by service-based financial offerings.
As customers ask for flexible usage models, connected cars are making new services possible. Automotive sales, leasing, financing, and retail channels have been rethinking their business models, and OEMs are realizing that they can earn more in the future from the use of the vehicle over its lifecycle than from the one-off sale of a new car.
Financial services in automotive are working towards reinventing themselves as a service-based business. This means subscription and usage-based models will gather immense steam, fixed monthly installments will be replaced by flexible ones, and additional options can be booked on-demand as required, creating new points of contact with customers in the process, which in turn will create a skyrocketing demand for new mobile payment solutions.
More vehicle data than ever before
Vehicles are creating a wealth of data on which the newer services are already in play, ranging from pay-as-you-drive financial products for private customers to telematics solutions that reduce costs for commercial fleets. Digital sales & leasing channels with direct customer contact are next in line with the younger clientele insisting upon service-based and on-demand solutions.
01 Growth in telematics & usage-based policies
The increase in telematics policies that use connected & autonomous vehicle sensor data will drive more accurate and cheaper pricing for safer drivers and potentially improve the behavior of unsafe drivers through feedback. In addition, policies could also be scaled to reflect the driver’s actual use. In-vehicle sensors and cameras streamline the claims process, by providing independent evidence for incidents. With more and more data available, the majority of claims are expected to be automated in the near future.
02 Rise of digital leasing and lending
Traditional car ownership as perceived by consumers is changing and the demand for on-demand and sharing services has created a related opportunity for specialized financial services. The leasing of vehicles for on-demand platforms and bundling of insurance with the vehicle is providing an impetus to flexible vehicle subscription models. The enormous potential of embedded insurance as a native feature of mobility is extending beyond car ownership to newer forms of risks and assets as well. The amount of data OEMs will now have, that is re-defining the efficiencies of selling a product tied to the build and brand of the car itself, is difficult to compete with.
03 Transition from personal liability to product liability
As AVs and software increasingly make driving decisions instead of humans, there is a shift coming — from personal auto insurance products sold on an individual basis to product liability sold to manufacturers and operators. Across many countries, insurance companies are working with governments and trade bodies to determine how AVs, and vehicles that can switch between autonomous modes are to be treated in law. And non-AVs are set to become too expensive to insure when the majority of vehicles on the roads will be AVs.
04 Reduced accident to impact life expectancy & health insurance
AVs are expected to reduce the volume of road accident injuries and fatalities thanks to improved safety and enhanced capabilities. This could reduce the overall mortality rate of the population as well as claims relating to motor injuries, influencing the pricing of health and life insurance premiums. Health sensors in vehicles could also be linked to a broader array of wearables, health apps, and monitoring devices creating opportunities to offer health insurance products that are either priced according to lifestyle or incentivized for positive lifestyle changes.
05 Universal & seamless payment ecosystem
Mobility itself already represents an enormous set of transactions, both overall and its component sub-markets. At this point, the MaaS market consists of a wide variety of players, many of which lack the capability to handle complex, secure transactions themselves. Developing payment capacity and integrating it into an app or user interface, while surmounting regulatory and anti-fraud barriers is needed. By developing a tailored offering, a payment provider has the opportunity of servicing the mobility value chain end-to-end, as it will service payments both to its suppliers and consumers. This will allow for smooth and quick planning of trips across all modes of travel, customized based on individual preferences. A variety of new capabilities like fleet optimization, dynamic route planning, integrated electronic ticketing, and close collaborations with city governments and mobility operators will also be required.
For financial services developing a clear data strategy, identifying valuable future data segments is vital to deliver upon a strategy for the automotive industry. As some of these changes take root, the expected disruption will also impact a wide range of sectors beyond automotive, such as AV logistics, changes in vehicle usage patterns, city landscapes, and spill onto traditionally safe investment areas such as real estate and infrastructure. Data excellence will thus be a key success factor, especially in the mobility payments space, where network effects could benefit all players by finding a legal and safe space for data to be shared across infrastructures that are currently distinct.