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Could cars become mobile wallets?

Summary:
Sirish Kumar, former CFO of Paypal (India and ASEAN region) in this OMFIF article points to ongoing technological changes in banking. As banks are under pressure from fintechs in their banking business, the banks need to look at facilitating online businesses: Winds of disruption seen in consumer payments and retail banking are heavier than ever in banks’ wholesale payments and cash management business, which generates annual revenues of more than 0bn. This business provides payments solutions for suppliers and liquidity management for treasurers. Until recently, banks as incumbents have enjoyed returns on equity of 20% to 40% and have leveraged this business as an anchor for large corporate relationships (with opportunities for cross-selling). Fintechs and other non-banks have

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Sirish Kumar, former CFO of Paypal (India and ASEAN region) in this OMFIF article points to ongoing technological changes in banking. As banks are under pressure from fintechs in their banking business, the banks need to look at facilitating online businesses:

Winds of disruption seen in consumer payments and retail banking are heavier than ever in banks’ wholesale payments and cash management business, which generates annual revenues of more than $250bn. This business provides payments solutions for suppliers and liquidity management for treasurers.

Until recently, banks as incumbents have enjoyed returns on equity of 20% to 40% and have leveraged this business as an anchor for large corporate relationships (with opportunities for cross-selling). Fintechs and other non-banks have made a dent in the market share of these banks, and other banks like Goldman Sachs are entering this space too.

To protect their turf, incumbent banks must be ready to service emerging online business models in different industries by innovating at the intersection of digital lending and digital payments.

For instance, they could look at car business which is getting digital:

One area that is becoming increasingly digitalised is the automotive sector. Let’s look at the agenda for the next five years. We are starting to see shifts in investment towards electric car manufacturing. In Asia, non-banks like SP Mobility and Oyika are focused on installing charging stations. Non-bank platforms like Cazoo, Carvana, CarMax, Cars24, CARRO and olx are focused on converting motorbike owners to used-car owners in India, Latin America and Southeast Asia, where less than 12% of the population own cars (compared to more than 50% in the US). Other priorities include lowering distribution costs by 10% to 20% by eliminating traditional dealership models and revolutionising the concept of car ownership.

In many regions like western Europe and Singapore, we can pay monthly subscriptions for car registration, road tax, 24-hour assistance, general inspection, repairs and insurance. This enables customers to make multiple payments in one transaction. Customers can access transparent pricing and choose from a menu of services to include in monthly payments. This subscription model is expected to register a compound annual growth rate of more than 80% and increase its market share to 22% by 2025, up from 3% now.

As subscription offerings scale up, particularly in online car sales, this will transform traditional leasing and renting models. Innovative platforms like Carvana have seen lending contribute to almost 50% of the gross profit per car unit and increase the transaction size of cars purchased. In 2020, leasing and financed vehicles made up 28% of Volkswagen’s vehicle sales. The growth in financial services business helped offset the contraction in new vehicle sales. JP Morgan’s recent purchase of a majority stake in Volkswagen’s payments business is likely to have a significant impact on the industry and beyond.

….

Innovation in digital payments can provide a better customer experience by making in-car payments for toll charges, parking and fuel or charging electric cars. Payments platforms like LogPay in Europe are steering such innovation. For this to be possible, payment processors will need to partner with fuelling stations and issue fuel cards that enable cardholders to refuel or charge at the nearest station. They will also need to integrate with car parking and toll operators directly or on aggregators of parking operators.

Hmm..

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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