5 Uses for Blockchain in Auto Finance

The hype around blockchain ranges from technology that serves as a convenient and more secure way to transact funds, to a revolutionary invention that’s going to remake and supplant the current state of the internet as we know it.

The reality for auto lenders is that the technology is still experimental, requiring further development before it can improve internal operations on a large scale.

Blockchain aims to eliminate many of the “middleman” processing that goes into payments and other financial functions by using a decentralized public ledger of the transaction history. It’s hard to tell what that means exactly in the context of auto finance, but given the amount of data that changes hands in the industry between consumers, dealers, and lenders, it’s easy to see how a tool designed to eliminate middlemen could be a benefit.   

Here are the top five trends auto finance companies are exploring today:

1. Capital Markets

Daimler AG’s captive arm Daimler Financial Services completed a 1-year $116 million capital markets transaction in late June that was initiated a year ago using blockchain technology and is looking to expand that success into other areas of the business.

“Blockchain can affect nearly the entire value chain. That’s why we, as a leading automaker, want to play an active role in the global blockchain community and help shape the cross-sector blockchain standards,” Kurt Schäfer, vice president of Daimler Treasury, said in a press release. “We want to do this in all the areas of application that are important to us: customer relations, sales and marketing, supplier management, digital services, and financial services.”

2. Setting the Rules of The Road

Chris Ballinger formed Mobility Open Blockchain Initiative (MOBI) so that auto lenders can help set the rules of the road when it comes to how blockchain is implemented throughout the industry.

MOBI partners with BMW, Ford, Faraday Future, General Motors, Groupe Renault, and some 37 other technology providers.  

“Working in a consortium allows MOBI and partners to create transparency and trust among users, reduce the risk of fraud, and reduce frictions and transaction costs in mobility, such as fees or surcharges applied by third parties,” according to a press release.

In particular, Ballinger believes smart contracts will help financial institutions fund more contracts and enjoy easier title transfers. Smart contracts are computer programs that can automatically approve borrowers based on predefined credit metrics. While lenders already utilize automated decisioning tools, blockchain makes the transactions more secure and doesn’t require an intermediator.

Smart contracts show how blockchain can streamline “cumbersome processes” captives typically deal with, but at a lower cost through a community database, Ballinger said.

3. Mobility Efforts

Blockchain technology can provide some exciting use cases as consumers explore how to gain more value out of their automotive assets through rideshare and carshare. 

According to IBM, which is a partner in MOBI, blockchain can help verify vehicle identity and vehicle history, track auto components through the supply chain, automate machine payments, establish a mobility commerce platform, and support usage-based insurance and taxes.

While many of these functions can happen separately, it’s the benefit of having everything streamlined under one system where blockchain has its advantage.

For example, having one system to independently verify a vehicle’s damage report, history, and maintenance helps ensure trust and reliability in the carshare ecosystem.

4. Opening Up the Auctions

Given the benefits that blockchain brings to vehicle inspections and the supply chain, online auctions make sense as a proving ground for the technology.

ADX 365 launched a mobile auction platform this month for dealers based on blockchain technology.

“ADX 365’s innovative use of blockchain technology within the automotive industry will lead to an adaptation of how dealerships around the country participate in auctions,” the company stated in a press release.

5. Reducing Costs

As interest rates rise, small and medium-sized businesses will need as much help as they can get to improve shrinking margins.

A group called INVioU promises to utilize blockchain technology to manage the financial records and invoices of these middle-tier financial organizations to improve their profits.

Professor George Giaglis has been involved with blockchain since 2011 and joined INVioU last month. He’ll advise the group on how to reduce the financing and credit margins of small businesses, “especially those that would be otherwise prevented from entering the credit financing market due to their low transaction value and high-risk to lenders,” according to a press release.

“INVioU presents a very promising use case for blockchain, as it provides small businesses access to a decentralized invoice factoring marketplace, removing barriers to obtaining finance, neutralizing the risk of fraud and, as a result, reducing the overall cost of finance,” he said in the release. “I’m proud to support such efforts.”