Incumbents in the automobile industry take the lead
Whoever can best overcome these challenges can unlock the significant potential for offering innovative payment services within the future mobility space. Several players have already positioned themselves to solve these problems. Most prominent so far are incumbent automotive manufacturers, many of which have already established a payments related entity. Several automotive industry suppliers have also entered the payments space, which is perhaps a logical move since these companies are natural aggregators when it comes to generating economies of scale.
But beyond the obvious players, many nontraditional players are entering this untapped market. These new entrants include navigation companies, enterprise software providers and even electricity utilities. Although we’ve yet to see any company actually get a comprehensive solution in place, some have successfully launched payments services for specific uses, such as a global payment service provider collaborating with an international oil and gas company on facilitating mobile payments at their fuel stations.
Interestingly, the big, traditional players in the payments industry have yet to identify mobility as a future priority market. Within the banking sector, the most notable exception to this may be the collaboration between a Swiss bank, a German manufacturer of automotive parts and an energy company, on their development of an e-wallet for mobility purposes. Acquirer and payment-service providers (PSPs) have acknowledged the market but have yet to develop dedicated offerings that specifically meet the evolving payment requirements of the automotive industry.
The difference in speed of players from outside and within the payments industry is somewhat surprising as the nature of the problem to be overcome is one not just of technology but of scale. Since payments in the automotive sector will always take place within a two-sided market, any new form of payment will succeed only if enough customers want to use it and enough merchants want to accept it.
In this way, automotive-industry players have a key, competitive advantage — customers (both consumers and merchants). Building a strong customer base from scratch takes time, capital and risk. Instead, payments providers may consider partnering with automotive players to have instant access to a large customer base. For automotive players, the benefits of such collaborations would include gaining new know-how in an unfamiliar domain, such as payments regulation and the risks of running a payments system.
The rapid transformation of the automotive sector may present the next big opportunity for growth in the payments industry, with incumbents in a prime position to seize the potential of next-generation mobility. But they’ll need to act fast and explore innovative pathways, including collaborations, if they are to succeed against nimble new already building their assets and capabilities.
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Author contributions are from Jan Lettow and Maximilian Roskosch.