Fragmentation Holds Back In-Vehicle Payment Prospects

In-vehicle payments are literally just getting off the starting line but analysts predict this nascent business is about to accelerate into a multi-billion-dollar opportunity.

This growth is especially anticipated now that so many people cooped up the past year by the pandemic are getting vaccinated and back behind the wheel more often. That’s an $86Bn target, up from 2020’s $543M, in just three short years from now, according to Juniper Research’s forecast. The firm expects greater offerings and a more seamless user experience to exponentially elevate in-vehicle spending. “It’s currently quite niche but as infotainment systems improve and connectivity spreads, it will become more popular,” Nick Maynard, lead analyst at Juniper Research, told TU-Automotive, adding, “As partnerships become agreed upon by manufacturers, payment providers, and merchants, it will become increasingly important to offer.”

Fuel stations, EV charging and parking payments are the most obvious use cases and they have been the biggest opportunities to date. While many automakers mirror smartphones for infotainment, they may take a longer look at creating their own apps or payment platforms. “The automotive manufacturers benefit the most from the introduction of services, it adds to their infotainment and gives them more services to sell the user,” said Maynard. “For merchants, it’s another payment channel but is unlikely to drive much more traffic. For payments companies, all it does is take payment share from other methods, so it’s useful to offer for them but not transformative.”

The ‘Balkanization’ of merchants and marketplaces through automaker payment platform partnerships may also be hindering growth. A McKinsey study suggested: “Automakers should work with existing infrastructure, service and data providers to achieve scale quickly and deliver sought-after benefits. Instead, too often they work in isolation to develop, or simply reinvent, hard-to-scale island solutions between and OEM and one other player. Lacking dependable partners, they have little time to focus on core competencies and differentiators.”

Another hurdle holding back growth is the lack of widespread availability in automobiles. Most of these options are only available for higher-end or brand-new models. Increased availability will help boost adoption but ease of use will also boost usage. Voice commands and commerce are also expected to be a major factor increasing in-vehicle transactions. Juniper Research sees further integration of voice assistants, Alexa, Siri, et al, not just mirroring smartphones as a way to drive eCommerce sales over $11Bn in 2025. That’s up from just $12M in 2020.

Contactless Payments

One positive from the pandemic, however, may be that more consumer businesses are now better prepared for contactless payments after many were forced to offer various payment methods as well as offer takeout food or product delivery options they did not before 2020. “Covid has helped the adoption of a cashless society, so we’re seeing the opportunities increase,” noted Peter Virk, director of connected car and future technology for Jaguar Land Rover (JLR).

Virk added: “The greatest opportunity for Jaguar Land Rover with this technology is improving the customer experience in vehicle ownership. Contactless payments contribute to the frictionless ownership and enjoyment of owning and using our vehicles.” The carmaker is also betting on two future trends picking up pace: cryptocurrency usage and a robust rebound in the sharing economy. It is testing a service that allows drivers to earn cryptocurrency tokens by sharing data about road conditions and traffic with other motorists. Drivers could also earn more tokens if their car is used on a ride-sharing platform. JLR is developing the program with Germany’s IOTA, which will provide the currency and process payments. The tokens could be used to pay for parking, tolls, charging EVs as well as other goods and services.

While the automaker says it has tested the technology on both Jaguar and Range Rover models, it is early days for this type of automotive e-wallet. Virk said: “Crypto currency is an evolving solution for payments. Jaguar Land Rover are continuing to watch the industry trends and see how standards are formed, in terms of usability and meeting market regulations.”

While IOTA executives have said publicly that their currency could provide a universal payment option, the lack of uniformity and acceptance by regulators and consumers may slow adoption. “If Jaguar can sign up particular partners to accept it, then it’s possible it will gain some traction but it’s more likely that people will use their existing payment methods (particularly digital wallets) to make payments,” Maynard said. “If every manufacturer has a different cryptocurrency, then not every tolling company is going to accept all of them, so you end up in a position where some are more useful than others. We see the future in being open loop payment types, such as card or digital wallet rather than in proprietary systems.”

There is also the issue of security and whether the automaker or payment platform would be responsible for hacks or data leaks. Maynard said: “Both parties would share responsibilities, this is an issue that OEMs are already grappling with as their infotainment systems become more advanced. The payment companies are involved as their experience in areas such as tokenization can go a long way to securing the overall market, which is highly important.”

Consumer protection is just one of the many issues that regulators and the industry will need to iron out on the road to greater acceptance of in-vehicle payments. Virk summed up the current situation: “The challenge across the industry is there’s no right solution for every market. The fragmentation between suppliers and providers, across different countries, means there’s no one-size-fits-all for a global roll out of the technology.”