Listen: Next in Tech | Episode 161: Payment Technology In Automotive

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Eric Hanselman

Welcome to Next in Tech, an S&P Global Market Intelligence podcast where the world of emerging tech lives. I'm your host, Eric Hanselman, Chief Analyst for Technology, Media and Telecom at S&P Global Market Intelligence.

And today, we're going to be discussing payments technology in automotive. It's a set of places where there are interesting developments that are taking place that are bringing these two technology areas together. To discuss that with me today are two of our analyst team, Beatriz Minamy and Sophia Furber. Welcome to the podcast to you both.

Beatriz Minamy

Thanks, Eric. Happy to be here.

Sophia Furber

Hello. Thanks for having me on your podcast, Eric.

Eric Hanselman

It's great to have you here because we've talked about both of these areas independently, but especially when you look at integration that's taking place, there are some fascinating trends that are at work that are bringing these two together and some interesting aspects to those intersections that I thought it would be interesting to get into. I guess, to start, maybe give us a little background on really what the market trends are and what this transition looks like, really some of the forces that are at play.

Beatriz Minamy

Yes, absolutely. I'll take this first, Eric. The automotive industry is undergoing a big transformation with electric vehicles, autonomous vehicles and, what we call, the software-defined vehicles. These are driving new technologies, including in-vehicle payments.

What we observe is that this, for specific case, for vehicle payments, we have been studying it for a few years now. And one of the challenges that arise is finding the right use case for this technology to fly and to be -- end up with a client. Indeed, electric vehicles offers an opportunity as much of this electric and hybrid vehicle owners are connected and are paying for a subscription, which facilitates, of course, the adoption of in-vehicle payments.

When it comes to the use cases, there are different applications, not only on connected services but also on ADAS and autonomous -- automated driving features that could also be sold as an upgrade for the vehicle once it is sold. That may come with [ hourly ] updates and could be also be paid through this technology.

Eric Hanselman

It really sounds like this is a transition that is mirroring a lot of what we've seen in other areas of tech. But in automotive, the idea of this level of software definition is something that is relatively new from an industry that is long and storied and fairly well-established. It seems like we're starting to get into some relatively new areas and in an area in which there's really some feeling out of what the real practical use cases actually look like.

Beatriz Minamy

Yes, absolutely. The software-defined trend is combining not only software force, but hardware elements, new in-vehicle architecture. Electric and electronic architectures are enabling software-defined vehicles. With the arrival of software-defined vehicles, we will see more compute capabilities, more edge-to-cloud capabilities, opening up new opportunities for -- and use cases for in-vehicle payments and not only limited for automotive use cases, but integrating the full ecosystem, marketplace, insurance and other use cases.

Eric Hanselman

Okay. It seems like it starts out with some of the really the basic pieces, all of the charging capabilities, some of those nuts and bolts pieces. But this really could expand to a lot of different aspects when you think about once you've got payment capabilities that are integrated.

Beatriz Minamy

Yes, absolutely. You mentioned a key point here. So the charging infrastructure represents, we'll say, the first real necessity use case were in-vehicle payments. And we have seen some solutions already in the market with a Plug & Charge. And many other OEMs and charging infrastructure providers and technology providers working on these use cases to make it real. The Plug & Charge enables the driver to charge the car and avoid using any type of physical device or car to pay.

So information of the car goes in the charging station and the payment process is done in the cloud. And then the driver gets the receipt within an e-mail. So this is quite relevant for fleet use cases, for instance. When we have discussed with different clients, they have highlighted the relevancy of EVs and the opportunity that this brings, especially on the charging space, to make it real, the in-vehicle payments.

Other use cases, of course, of in-vehicle payments are applicable for fuel payments, of course, tolls and also parking, food and beverage in the third or fourth position. So we have this information available in our VOCL survey, autonomous vehicles in the first quarter of 2024. Fuel and charging was the first use case, 30% of, let's say, acceptance within our audience who didn't respond.

Eric Hanselman

Yes. I mean it seems like one of those things -- and I'll reference our listeners to Voice of The Connected User Landscape. Study it on vehicles. Maybe it sounds like people are identifying the simple upfront things first. But there is that larger set of capabilities that potentially because you've mentioned not only just the fueling pieces, parking, food and beverage, a lot of these things that seem to be sort of natural adjacencies that could grow out of an integrated payment capability. The trick is we've got to get towards the payment side of this to begin with. So that's where the payment side comes in.

Sophia Furber

Yes, absolutely. So I'll just hop in on this from a fintech standpoint. Beatriz, thanks for the scene-setting there. I think there's so much that can be done in terms of automated payments. And I think the idea of kind of having the car itself being the payment device is really interesting. I would say, like one theme that is pretty common across automotive payments.

So we're thinking about sort of fuel and parking is sort of core user experience, definitely the case in Europe that, I suppose, the payments experience that people might have on paying for parking or paying for fuel is not as seamless and as smooth as they would expect when they are, say, for example, ordering from delivery or shopping online for clothes or for consumer goods. So there's a whole wide open space that is right for disruption or creating much, much better user experiences. And so I think that's a really interesting piece.

In-car payments is interesting because it kind of fits in with a broader, more overarching theme that we're seeing in fintech of embedded finance. So for those who aren't familiar with the term, that means embedding financial products and experiences into the consumer journeys of nonfinancial services company. So a classic example might be, say, a ride-hailing service that provides its own bank account or debit card for its drivers or it could be a furniture company offering a point-of-sale finance, buy now, pay later at the checkout.

So I suppose the automotive piece is really interesting because it's sort of bringing financial services into a place that you wouldn't normally expect to find them, which is right inside your car. So I think that's a very interesting convergence of two trends there, right, the embedded finance piece, which you're seeing more broadly on the fintech side, and then the car sort of on the website is being something that's [indiscernible].

Eric Hanselman

This is one of the things that Jordan McKee had been on a few episodes ago talking about integration in the extent to which now you've got the owners of particular vertical stacks, whether or not it happens to be retail in various forms, wanting to be able to integrate payments to be able to make customer experience better. But Sophia, as you were saying, it sounds like there's still some customer experience improvements that are possible and certainly a set of dynamics that are taking place within the payments industry and in fintech more broadly that's really impacting us as well.

Sophia Furber

Yes, definitely. And I suppose there's -- I mean there's a lot of different kinds of friction as well, which -- I mean, I suppose, one is just like, I suppose, like a poor app experience as well and I'm paying for parking. But then there's other things.

If you look at this from a European perspective, there are a lot of toll roads on the European continent. That's all good and well if you're paying with a debit card for, say, crossing from France into Spain. But if you're crossing into multiple different jurisdictions, and then there's a currency conversion, not everyone is obviously in the euro. There's going to be charges on your bank card for using your card in a different jurisdiction, some countries, so it can actually be really high.

So I mean, I suppose, there's a question of, I suppose, creating payment experiences, where you can be in your car crossing into different jurisdictions, and you're not going to get slammed on all those currency conversion charges each time you pass the toll road. It's stuff like that where there's a lot of room for innovation to take place, not just in terms of getting through the toll booth quicker, but also just not paying a quite a fortune [indiscernible].

Eric Hanselman

Well, predictability, which is one of those things that we get back to the fundaments of customer experience. It's one of the things that Sheryl Kingstone talks about a lot is making sure that you've got something that is smooth, seamless and understandable.

And when you've got the potential to have extra costs that are not always necessarily predictable or at least unexpected, that really takes a hit on customer experience and that whole process. It sounds like those are some of the things that, in the integration of fintech and the automotive sphere, you really have to be addressed to look for much broader acceptance and, hopefully, greater success.

Sophia Furber

Absolutely.

Eric Hanselman

So if we think about some of the integration and really what those overall trends are in terms of the application, how [indiscernible] you see the shift in the automotive sphere? It seems like there are a lot of different pieces that are potentially available to integrate. Where do you see that going? And what are some of the use cases that sounds like makes sense around that?

Beatriz Minamy

I think, and as mentioned previously, the EV opportunity, since they are the most relevant nowadays, now looking at the automotive industry, shifting from combustion to electric, we have various use cases, including, of course, charging but also as well smart parking, where you cannot only park your car but you can also charge at the same time.

Then Sophia mentioned also some multimodal capabilities, the ability of paying an end-to-end trip, let's say, door-to-door, with just one click. And also the insurance guys, which is also gaining relevancy. Most of the OEMs are now creating their own insurance, let's say, in your company. As mentioned, the software-defined vehicle, which are also known as data center on wheels, have the capability of gathering a vast amount of data. And when it's processed, gets relevant insights.

So how is real driving score performance? So this is used notably for the insurance. So all of these are relevant use cases. And what we observed from a trend is that there will be more edge capabilities within the vehicles. So the computer power is increasing. Therefore, most of these data decisions will happen onboard, with opening up more opportunities, again, for different use cases for foreign vehicle payments.

Eric Hanselman

So it seems like one of those situations, where, once you've got capacity within the vehicle, now you've got the ability to take advantage of it. And whether or not that happens to be telematics and being able to do integration for services that are based on it, as you mentioned, like insurance, things like that. But there's the possibility to potentially do more as the platform expands, as there's more capacity. I guess, it's that classic technology situation of the applications are going to expand to consume all of the capacity within the platform they're operating. So...

Beatriz Minamy

Absolutely, yes. It's kind of a nascent emerging trend, but many experts think that once it will proliferate, it will serve many use cases. So automakers and the overall industry ecosystem should be prepared, should anticipate the need not only from, I mean, the software platform, also the hardware as well, and the partnerships, which are key here.

Eric Hanselman

Well, that raises that point about what those partnerships look like because it seems like there are some of the four automotive OEMs that are looking to own some of this. There also are partnerships. There are financial players that have actually bought into this environment, a lot of different aspects that are in play. What are some of the details there?

Sophia Furber

Well, I can jump in on some of the financial services stuff. So from a sort of the payment processing or payment services standpoint, you've got a couple of the really big giants in payment processing, like JPMorgan, getting into the space and having alliances with all kinds of different auto manufacturers. So that's very interesting.

I think JPMorgan, I mean, for those who aren't so familiar with the payment processing space, JPMorgan is a real center of gravity across the globe in payment processing. And we've seen them as being quite a sort of a front lever and a mover and shaker when it comes to payments, whether that's sort of just payment acceptance or whether it's coming up with, I suppose, like supporting the payment experience of driving a sort of embedded finance proposition.

So they've been supporting Volvo, I believe, with their entry into the Indian market with the payments piece around how people kind of pay for their car, their new carbons, they booked it. So that's quite interesting.

And we are seeing fintechs as well, other fintechs kind of coming into the space. There's Stripe, the [indiscernible], BlueSnap, and banking side, Crédit Agricole Auto Bank. So we're definitely seeing more players moving into the space, but there's definitely -- there's room for more. I think that's one thing I would underline as other areas of payments, which are quite crowded, say, e-commerce, for example. But auto, yes, I think there is a lot of wide open space for fintechs who want to partner in an innovative way.

Eric Hanselman

Well, it is something, though, we'll call out. Both of you mentioned that use cases are important, and practical application is important. GM headed into a payments environment. And I think they were thinking about maybe the convenience store integration pieces, being able to expand it, but they'd actually stepped back from it, yes?

Beatriz Minamy

Yes. It was in 2022, actually, they shut down this vehicle marketplace. It was powered by Zillow, and it was actually the first in car commerce platform. The use cases were more on the retail side, like buying for coffee or pay for gas. So one of the hypothesis of -- for this example, it didn't fly because it was not bringing enough differentiation and enough value to the customer to pay for this service. So if you find a use case, it adds value within the customer journey, the client will pay for that.

That's why, again, back to the EV use case, charging is less use case [indiscernible] to charge your car. Although it's important to mention that the EV market is -- remains a niche, right? And still, it will take some years to have an EV park, let's say, driving the overall car park. Within our research, we have observed indeed some new opportunities, some OEMs developing their own, let's say, wallets.

Mercedes, they developed their Mercedes pay. Hyundai is coming as well with Hyundai Pay. And many others also will come here on the Tier 1 or Tier 1 suppliers. HARMAN Automotive launched their Ignite platform, application platform, where you have also the possibility of doing payments. So we observed that OEMs are not giving up on this use case. They understand this is quite strategic area to invest. And again, they are doing this within the full support of their partners, including payment processors and tech companies.

Eric Hanselman

It sounds as though this is a similar kind of path as we saw with automotive entertainment, that some OEMs partnered, some OEMs built their own, some went with device manufacturers. It's all of the various -- the Apple and Google, Google Android kinds of pieces. It sounds like we're going through this again, but that at its core, gets back to the point that the two of you were making.

Because you were talking about the importance of the ecosystem. And so here you were talking about the importance of customer experience. It seems like you've got to have both of these in order to get the critical mass. That there has to be the ecosystem that supports it, the experience itself has to be sufficient and really -- in order to make this successful. Still early days, but I guess, a ways to go yet.

Sophia Furber

Absolutely. And there's one thing I would add to that, which is that it's important to have -- if you're doing anything to do with financial services, there's the regulatory piece. So unless there's an auto manufacturer that literally has its own bank and is authorized to do things around, say, the provision of payment services or the provision of credit, if they want to have something that's kind of a lending or buy now proposition. So yes, you need to have that regulation piece. So if you, auto, that did have it, then great. But if you don't, you are going to need pet to partner with another financial services company or a bank who has those appropriate regulations in place.

Eric Hanselman

Critical point, yes, of course, because you not only -- you're not only dealing with the automotive regulatory side, but of course, that banking regulatory side does have a bit of a challenge in there as well.

Sophia Furber

Yes, absolutely. And especially when you're working across different jurisdictions, I think that can be a real headache. And I think when you're seeing these propositions, they involve some two industries coming together. It's -- I think it's very difficult to be like totally vertically integrated with something like this. I think collaboration really is key.

Eric Hanselman

Well, that's the challenge of mobile platform. Now suddenly, you've got the potential to span regulatory jurisdictions just on a drive. Woe betide those that have not actually understood what those ramifications are and where they go. Aye, hey, hey. So what do you both think about the future directions? What should enterprise be looking for? Or what should we be thinking about for the market as we look for the year ahead, this transition?

Sophia Furber

I'd say one thing we haven't talked about yet is concerns about fraud. This is a massive theme for us in fintech at the moment. Fraudsters are getting more and more sophisticated. I think we're seeing the fraud landscape moving beyond sort of predominantly document fraud, but to biometric fraud. So spoofing of voice and, yes, sort of facial recognition ID, there's a lot that can be done.

And it is really bamboozling a lot of companies in the payment space, and they are having often partner smartly with fintechs. We have capabilities to detect fraud, especially biometric fraud. So I'm very interested to see how this translates into the in-car payment space. What kind of specific broad challenges will in-car payments face? And how will automated manufacturers and other players who are involved in that experience rise to those challenges? And what appropriate safeguards are going to be put up? I think that's really interesting.

Eric Hanselman

Makes sense. And future's on, on the automotive side, what are your thoughts about? What we should be keeping an eye out for?

Beatriz Minamy

I think that, of course, the development of infrastructures, 5G edge and computing, power increasing in vehicle will accelerate towards the different use cases for in-vehicle payments. And I'd like to highlight that initial payments is just one small piece of what is big financial companies are partnering with the automotive companies, which include broader end-to-end e-commerce platforms, payment platforms, where they can also work on, what they call, the online retail.

It comes with banking products, notably increasing their market share, like the leasing and loans, also Mobility-as-a-Service opportunity as well. So it's important to keep an eye on how financial companies will continue working with automotive, not only, of course, for the in-vehicle payments, but also for the full, let's say, vehicle life cycle process, from purchase up to the sale and connected services adoption.

Eric Hanselman

No, that's a good point. It really is that potential of the full life cycle, all of the use cases, not only of the vehicle itself, but it's the drivers and passengers that they can put together. Well, it sounds like a lot to look out for.

Once again, I'll point our listeners towards the research that the two of you published around this or some background on this, offers all sorts of useful insights to be able to dig into this in a little more detail. But I appreciate all the perspectives. It's been great having you both on the podcast. Thank you.

Sophia Furber

Great. Thank you so much for having me, Eric.

Beatriz Minamy

Great, Eric. Thank you so much.

Eric Hanselman

And that is it for this episode of Next in Tech. Thanks to our audience for staying with us. And thanks to our production team, including Carolyn Wright, Kaitlin Buckley on the Marketing and Events teams, and our agency partner, the 199. I hope they'll join us for our next episode where we're going to be talking about the journey to cloud native and really what enterprise orchestration rely looks like in some of the challenges that many are facing. The move to what's new, what's next. I hope to join us and because there is always something.

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