By Johannes Riedl, Global Client Partner, NETSOL Technologies
Since its inception in 2008, blockchain has disrupted the business agenda continuously. In fact, blockchain is now considered one of a handful of what Harvard Business Review describes as “foundational technologies”. These are technologies with the potential to fundamentally alter the way industries operate.
This is certainly the case for the automotive finance sector, where blockchain has the potential to redefine how all parties in a transaction interact and to alter the shape and speed of transactions.
So, what is blockchain?
The goal of any blockchain is ultimately to provide a means to allow digital information to be recorded and distributed, but not edited. Information stored in the blocks can be transactions, the deeds to a house or a record of someone’s vote in an election. The key point is that the blockchain is open, transparent and secure.
Each block, when filled, is securely linked to the rest of the chain via identifying codes known as a hash. As the blockchain is distributed and duplicated across multiple computers or servers and is open to all users, it would quickly be obvious if something in an older block had been altered. The codes connected the blocks wouldn’t match and the chain would break. Tampering with one block, or trying to retrospectively change data in a block, is therefore made more difficult by the fact that each block is linked cryptographically to all subsequent blocks.
The distributed nature of blockchains makes them resilient and robust, better able to cope with attacks or system failures.
Blockchain in the auto finance industry is in its infancy
Both larger players and startups in the auto finance industry have recognised the potential of blockchain. However, so far, it’s still relatively in its early days.
For example, Daimler AG’s captive arm Daimler Financial Services completed a one-year, $116m capital markets transaction that was initiated using blockchain technology. It is now looking to expand this success into other business areas and has recruited a dedicated team to look into the opportunities blockchain offers, with a natural focus on how it can change the dynamics of trust across the industry.
A handful of enterprising startups are also experimenting with introducing blockchain into aspects of the automotive finance industry. These include companies such as Carvertical and Autoblock, which offer solutions to identification and tracking, helping trace spare parts for example, sharing digital identification and tracing the authenticity (and hence the reliability) of spare parts.
Blockchain is working to authenticate and validate the transfer of ownership of named vehicles and assets while eliminating the need for intermediaries and promoting a global database of ownership that remains completely secure. Others are working on specialist solutions for optimising vehicle recalls, for improving operations within the car insurance sector and for building loyalty-based token schemes for car dealerships.
Despite this apparent boom in activity, it is still happening at a small scale and is going to be several years before we see mass adoption of blockchain technology across the industry. Nevertheless, when it comes, the transformation could be deep, fundamental and long-lasting.
One of the areas where it has successfully been deployed so far is across elements of the mobility ecosystem. Here, several service providers can be combined in one offering and as consumers’ relationships with vehicle ownership shifts, blockchain may assist in tracking and tracing who has used a vehicle, where and when.
Other, more advanced options to build blockchain into auto financing include the use of automated due diligence and auto-identification (know your customer) and smart, automated contracts, as well as the idea of digital twins for cars able to accurately track mileage and usage and apply thinking such as predictive maintenance.
The use of blockchain technology to prevent odometer fraud is already being trialled, for example, by Bosch.
Bosch connects odometers, through a small IoT device, to the blockchain that can record mileage directly from the cars. Once the car hits the market, mileage can be traced back easily by comparing the odometer reading and the one stored on the blockchain, thus eliminating the chance of fraud.
Otoz Mobility, a digital retail and mobility focused start-up backed by NETSOL Technologies offers the same thing. Implemented using Hyperledger Fabric to provide a private and permission-ed access to the ledger, Otoz blockchain allows controlled and provisioned access to the ecosystem, as opposed to public accessibility. By providing a digital twin of EVs stored on the Otoz ledger, a single, source-of-truth can be shared.
Disruption and the role of OEMs
A recent report from consulting firm Deloitte highlights the significant impact that blockchain could have for car makers and finance firms able to see the opportunity: “Blockchain can become the enabling technology for automotive companies to maintain a key role as the direct provider of mobility services to end customers.”
It is also capable of smoothing out how vehicle manufacturers and finance houses interact with one another, as identified by Tata Consultancy Services in a recent report. However, this is still early days for blockchain and the automotive industry. While there are clearly lots of potential uses and many ways technology could change the way the industry operates and its underpinning of finance models, significant change remains some way off.
It is perhaps more accurate to say we’re at the stage of experimentation. While most of the industry believes it has the potential to change how markets functions, there aren’t any definitive answers yet.
How is this technology likely to be deployed in the coming years?
The potential future uses of blockchain will continue to open up as other technologies develop, additional uses of blockchain are discovered, and as the market experiments. Essentially, blockchain can be implemented within the industry wherever trust and transparency are required.
Historically we have seen the pendulum swing between centralised and de-centralised systems. First were the mainframes, then personal computers, then the cloud, and now blockchain. The availability of 5G will push this trend of cloud computing to the edge, which will increase the use of blockchain as ledger.
But the network that devices will connect to was not built for this level of bidirectional data traffic, or with the assurance of low latency that 5G often promises. To combat this, data centres must decentralise once again in order to prevent bottlenecking and ensure data performance targets can be met.
In overcoming these challenges, there are potentially significant gains to be made, and this technological trend will enable the auto finance sector to experiment with more use cases. Over at Tesla, for example, the benefits of cloud computing have already been realised with the Model S, a next-generation electric automobile that includes a digital interface which allows changes to the configuration and functionality of the vehicle, all without significant physical adjustments.
The on-board computer has also been programmed via customisations to Google’s Android mobile operating system which, according to Elon Musk, will allow the Model S to support third-party apps and subsequently extend the car’s functionality.
Right now, the industry is experiencing a period of rapid change, as new trends from car sharing and subscription to electrification and driverless cars emerge. As these trends continue to develop, they will bring the possibility of making blockchain the enabling technology for mobility and allowing automotive companies to provide seamless, transparent, and high-end user experiences to their customers.
Blockchain can be used to securely share all sorts of data on a vehicle, its usage, its owner, as well as manufacturers and dealers. This data could be monetised by fetching more value from the vehicles and utilising it through car sharing.
This ability to bring together various different constituents from across all parts of the industry is an opportunity that Deloitte recognised in its report into blockchain and the automotive industry. As more data is generated at every stage of the automotive value chain, blockchain is able to potentially link together data currently kept by different businesses in different parts of the industry and share it with auto finance companies, manufacturers, banks, dealers, and even end users and customers.
The future remains bright for blockchain
So, what is holding up the wider adoption of the services blockchain facilitates? A quote from a recent Harvard Business Review article explains a great deal of the problems: “True blockchain-led transformation of business and government, is still many years away. That’s because blockchain is not a ‘disruptive’ technology, which can attack a traditional business model with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology. It has the potential to create new foundations for our economic and social systems. While the impact is predicted to be enormous, it will take decades for blockchain to seep into our economic and social infrastructure.”
As with all other aspects of blockchain, it seems that HBR and many other experts expect its adoption across the automotive finance sector will not be the result of a sudden, big bang. Rather, it will be a slow, gradual absorption and adoption into new ways of thinking and – perhaps most importantly – new ways of being able to build trust and integrity across the supply chain.