September 5, 2018
Dan Peacock | Vice President of Product Strategy
Big data and the Internet of Things are enhancing driver safety, car diagnostics and the delivery of new services through connected cars. No longer just a transportation vehicle, or even the system that directs you to a destination, cars are quickly becoming extensions of our online lives.
That’s important news for payments providers because opportunities for in-car payments are growing. In fact, the market is expected to grow at a compound annual rate of almost 200 percent through 2025 – from almost $13 billion to more than $100 billion – according to Technavio.
Grab the wheel now before you’re left in the dust.
If you’re unsure about how much connected cars could be worth, consider for a moment how much time you spend behind the wheel and how many of your purchases involve a car. Gas, tolls, car washes, parking, hitting the drive-through – the unexploited opportunities are vast.
But just as with smartphones, people expect information from their cars to be simple and immediate. As a result, it is extremely important that the in-car consumer experience be consistent with that of smartphones. In other words, the consumer experience (CX) should be driver-centric rather than vehicle-centric as first designed. That means providers must consider the entire driver journey – from leaving home in the morning to driving to work to picking up dinner on the way or returning from a night out.
The first payment services offered were those directly tied to vehicles: fuel purchases, parking and car maintenance. That’s changing, however. Designers now are expanding capabilities to enable pre-order and pre-payment of items like groceries, coffee and fast food, and even the ability to schedule curbside delivery.
Clearly, a connected car adds value for travelers. For financial institutions and payment providers, it also provides a wealth of information and behavioral data that can be further used to target customers with digital offers, or provide them directions to specific store locations.
As the payments and automotive industries come to grips with who owns the in-car payment CX – and, thus, who owns customer relationships and commissions – disruptive business models will be a threat. Is it car manufacturers with their increasingly sophisticated in-car infotainment hubs or is it smartphone companies for streaming through the car? And what does the consumer want? The market must decide whether a connected vehicle program should leverage embedded in-car connectivity, smartphone-based connectivity or a hybrid of both.
While embedded connectivity saddles car manufacturers with much higher costs, it has the potential to provide greater capabilities. However, if each car manufacturer has its own unique platform that will make adding third-party access harder. Drivers also may hesitate before adding apps from a car manufacturer after they’ve become accustomed to downloading them from a mobile provider. For that reason, a smartphone-based approach in which the vehicle simply mirrors the apps on a smartphone has a shorter development cycle and far fewer operating systems for app developers to contend.
Drivers increasingly expect cars and smartphones to seamlessly work together. Apple and Google offer their respective services for connecting phones to a car’s infotainment system, but the car industry isn’t ready to cede the center console to these technology giants. Car manufacturers are busy forming partnerships that can consolidate the market and standardize interfaces. This also will give developers the ability to integrate their smartphone apps with infotainment systems through open-source. But it is still too early to tell how the market will go, and whether consumer demand for simpler smartphone integration is the logical way forward.
Given the disruptive impact the app economy has had on so many industry sectors, connected cars have become a top-agenda item across the automotive industry. Stakeholders must be able to adapt to opportunities created by emerging technologies or risk losing business to more agile competitors. As this app economy converges with ubiquitous connectivity and the Internet of Things, more powerful in-car computing and 5G connectivity will drive manufacturers and their partners to create a wealth of new innovations. However, it also will open the door to disruptors.
Tell me in the comments what you think the future of in-car payments holds. And stay tuned for my next article, which will look at connected homes.
Vice President of Product Strategy
Dan is a member of FIS’s Payments Product Strategy team and focuses on developing the long-term strategy for U.S. retail payment products. His background spans 19 years in financial services leading co-brand credit card programs in the retail, travel and loyalty sectors, as well as issuer-branded consumer and business card programs.