Vehicles have always been a cornerstone of commerce. Whether we take vehicles to buy things, or buy things in them (food, electronic tolls), or buy things for them (gas, repairs), the automotive industry has transformed our economy and how we make purchases. What has yet to transform, however, are the means and methods of initiating these purchases from within the vehicle. This report illustrates the stakeholders, challenges, current market developments and potential future use cases that embedded in-vehicle payments have to offer.
The 451 Take
In-vehicle payments are currently restricted to very early-stage proof-of-concept (PoC) trials, which illustrate the significant challenges stemming from technological barriers, converging disparate systems, developing business models and standards for cross-domain stakeholders and scaling operations. To date, innovation, experimentation and ecosystem orchestration has primarily occurred outside of the vehicle with aftermarket devices, virtual wallets embedded in traveler's smartphones, and initiatives led by payment networks. The vehicle is leveraged primarily as a reference point, rather than a commerce platform in and of itself. However, it is inevitable that this ecosystem will converge over time, because it is too lucrative an opportunity for commerce applications to not take center stage on the future automotive dashboard, fueled by embedded in-vehicle payments and other intersecting technologies.
Context
When the US began to roll out the interstate highway system in the 1950s, vehicle ownership quickly followed due to automotive OEMs reaching economies of scale. Road wear-and-tear soon became problematic, and the solution was to implement a national toll booth system, collecting fees from travelers that would fund the roads' current well-being and future maintenance.
Beginning in the late 1980s, electronic toll collection and automated vehicle payments began to see traction as a means of reducing overhead costs for toll operators, facilities and traffic congestion. The recent emergence of overhead electronic gantries embedded into the road network even further lowered traffic congestion, enhanced convenience for the driver and eliminated surprisingly high toll-plaza-related accident rates.
The early success story for vehicle commerce was that there was clear incentive with ROI for the government to fund these infrastructure projects. Despite these achievements, we do not expect regulatory bodies to take a leadership role in fueling the vehicular commerce opportunity further.
Instead, it will be automotive OEMs in search of new revenue streams embedding technologies into the vehicle that will give travelers new experiences. It will also be payments companies seeking new sources of transaction volume and execution venues for commerce that look to convert automobiles into digital wallets on wheels. However, many challenges must be confronted before this moves from concept to reality.
The car convergence challenge
A major reason why in-vehicle payment projects haven't advanced out of the PoC stage can be accredited to the lack of common technological frameworks and standards, including architectural challenges between the primary stakeholders in this fragmented ecosystem. Although there are likely many different and adjacent lanes that will partake in this forthcoming ecosystem, the primary stakeholder categories include the government-led transportation infrastructure (roads, tolls, etc.), retailers and other point of interests, automotive OEMs and payment networks.
While these stakeholders are constantly evaluating ways to enhance the consumer experience, they've hit bumps in the road for extending outside of their individual siloed environment, and moving beyond one-off partnerships. To date, the common approach has been for each individual stakeholder to lead their own projects, and/or engage in minimal cross-domain partnerships, rather than look toward the entire ecosystem. Below, we describe each stakeholder and their current challenges:
Real-world payment deployments thus far have been for niche use cases and limited to headline-grabbing PoCs. The current focus is around displacing transactions from the POS or smartphone to the vehicle. While strategic partnerships are taking place, most have minimal geographic and commercial footprints, and applications are primarily derived from the smartphone, only using the vehicle as potential integration point.
There have yet to be noticeable in-vehicle payment PoCs that have successfully scaled, and made a meaningful impact on the automotive industry or disrupted adjacent ones. However, it is still promising to see early stages of collaboration for partnerships between these very different stakeholders, and it's an indication that this ecosystem is beginning to develop, despite its nascence. The common thread in the short term for in-vehicle payments use cases has been bettering driver experiences and adding frictionless everyday convenience. Select developments are illustrated below.
The 451 Take
In-vehicle payments are currently restricted to very early-stage proof-of-concept (PoC) trials, which illustrate the significant challenges stemming from technological barriers, converging disparate systems, developing business models and standards for cross-domain stakeholders and scaling operations. To date, innovation, experimentation and ecosystem orchestration has primarily occurred outside of the vehicle with aftermarket devices, virtual wallets embedded in traveler's smartphones, and initiatives led by payment networks. The vehicle is leveraged primarily as a reference point, rather than a commerce platform in and of itself. However, it is inevitable that this ecosystem will converge over time, because it is too lucrative an opportunity for commerce applications to not take center stage on the future automotive dashboard, fueled by embedded in-vehicle payments and other intersecting technologies.
Context
When the US began to roll out the interstate highway system in the 1950s, vehicle ownership quickly followed due to automotive OEMs reaching economies of scale. Road wear-and-tear soon became problematic, and the solution was to implement a national toll booth system, collecting fees from travelers that would fund the roads' current well-being and future maintenance.
Beginning in the late 1980s, electronic toll collection and automated vehicle payments began to see traction as a means of reducing overhead costs for toll operators, facilities and traffic congestion. The recent emergence of overhead electronic gantries embedded into the road network even further lowered traffic congestion, enhanced convenience for the driver and eliminated surprisingly high toll-plaza-related accident rates.
The early success story for vehicle commerce was that there was clear incentive with ROI for the government to fund these infrastructure projects. Despite these achievements, we do not expect regulatory bodies to take a leadership role in fueling the vehicular commerce opportunity further.
Instead, it will be automotive OEMs in search of new revenue streams embedding technologies into the vehicle that will give travelers new experiences. It will also be payments companies seeking new sources of transaction volume and execution venues for commerce that look to convert automobiles into digital wallets on wheels. However, many challenges must be confronted before this moves from concept to reality.
The car convergence challenge
A major reason why in-vehicle payment projects haven't advanced out of the PoC stage can be accredited to the lack of common technological frameworks and standards, including architectural challenges between the primary stakeholders in this fragmented ecosystem. Although there are likely many different and adjacent lanes that will partake in this forthcoming ecosystem, the primary stakeholder categories include the government-led transportation infrastructure (roads, tolls, etc.), retailers and other point of interests, automotive OEMs and payment networks.
While these stakeholders are constantly evaluating ways to enhance the consumer experience, they've hit bumps in the road for extending outside of their individual siloed environment, and moving beyond one-off partnerships. To date, the common approach has been for each individual stakeholder to lead their own projects, and/or engage in minimal cross-domain partnerships, rather than look toward the entire ecosystem. Below, we describe each stakeholder and their current challenges:
- Automotive OEMs aspire to provide new embedded connected services that drive revenue opportunities and innovative traveling experiences. However, they have not traditionally assumed leadership roles in pushing technological innovation due to long vehicle-production lifecycles and hypersensitivity around protecting their IP. These limitations create challenges for automotive OEMs in seeing the business case to invest in embedding digital wallets across different vehicle models and technological systems (infotainment, cluster). Certain automotive OEMs, such as Ford (FordPay), have chosen to take on the long and challenging endeavor of building their own wallets to assume full ownership over the transactional experience in their vehicles. Although this approach provides control, eschewing integration with existing digital wallets (e.g., Visa Checkout, PayPal) will create delays in execution, requiring the automotive OEM to take on the complex task of building a merchant and consumer ecosystem.
- Payment service providers like networks and gateways are eager to tap into the connected car market to realize new transaction volume and better engage with customers, but must contest with a fragmented ecosystem plagued with disjointed technology. Some automotive OEMs will be looking for full ownership over the payment experience, and will attempt to cut out financial intermediaries. Those that opt to partner will rely on payments providers to help link the transaction message from the vehicle to the physical place of commerce. This will be a significant opportunity for those able to effectively address engineering and integration challenges pertaining to merchants' point of sale (POS) systems. While some vehicular commerce experiences will be able to tap into existing POS integrations, such as through an order-ahead platform like Olo, many others will require custom connections into merchants' POS and order-management architecture.
- The government-driven transportation infrastructure is fixated on funding projects for connected and intelligent applications that either improve federal, state, local or municipality operational budgets, and/or better the lives of their citizens. While governments have seemingly figured out electronic toll collection, they have yet to link in vehicle-centric applications with the rest of the infrastructure, which could include commerce opportunities for parking or virtual payments in transit vehicles. The siloed and budget-constrained nature of governmental departments also inhibits interoperable vehicle and infrastructure technologies, and those looking to drive commerce use cases within it. Governments move notoriously slow with arduous requests for proposal processes, meaning vehicular commerce opportunities that tie into government infrastructure are unlikely to be a near- or even mid-term opportunities, and could be passed over by automotive OEMs and payments providers seeking near-term returns.
- Brick-and-mortar merchants with physical locations are currently confronted by massive disruption from internet-based commerce services that are delivering transformative shopping experiences. Bringing the wallet to the vehicle dashboard is an exciting new opportunity for merchants, which could help them increase competitiveness and better engage with customers. More so, it holds the potential to drive increased conversions (e.g., impulse buys), loyalty (convenience) and even average ticket size (customers tend to order more digitally vs. in-store at the POS). The opportunity only increases as the vehicle becomes autonomous and the dashboard inevitably becomes an advertising billboard. However, these opportunities will not be realized without partnerships and back-end integrations into systems like POS, order management and CRM. Merchants will be confronted by many requests for partnership in this emerging ecosystem. They must be able to separate the signal from the noise, and align with those partners that will best add value to their business and customer. Further, they must consider the operational changes that this opportunity will necessitate, such as how to deal with the influx of customers pre-ordering goods and services.
Real-world payment deployments thus far have been for niche use cases and limited to headline-grabbing PoCs. The current focus is around displacing transactions from the POS or smartphone to the vehicle. While strategic partnerships are taking place, most have minimal geographic and commercial footprints, and applications are primarily derived from the smartphone, only using the vehicle as potential integration point.
There have yet to be noticeable in-vehicle payment PoCs that have successfully scaled, and made a meaningful impact on the automotive industry or disrupted adjacent ones. However, it is still promising to see early stages of collaboration for partnerships between these very different stakeholders, and it's an indication that this ecosystem is beginning to develop, despite its nascence. The common thread in the short term for in-vehicle payments use cases has been bettering driver experiences and adding frictionless everyday convenience. Select developments are illustrated below.
Several announcements unveiled at CES were focused around embedded smart assistants in the vehicle. Amazon Alexa is in certain models of Toyotas, Lexus, Nissan, Ford and BMWs, and currently claims integration with more than 4,000 connected devices from 1,200 companies. Google Assistant is in roughly 1,500 devices, and working with 225 companies.
These smart assistant integrations will have important implications for vehicular commerce, conceivably enabling drivers to initiate and execute purchases without averting their eyes from the road. However, we anticipate there will be overlap and competition for those that own these partnership ecosystems. Will Alexa be the gateway to order pizza on its platform, or will the automotive OEM create its own commerce network?
Potential use cases
Putting aside all of the aforementioned engineering and cross-domain challenges, and the lack of current mass-market solutions, the addressable vehicle-centric commerce market where payments play a pivotal role is poised for disruption, and has a never-ending list of potential use cases.
Segmenting these use cases can be thought of as reactive (action is made based on a vehicle-trigger instance) vs. predictive (action is made before a vehicle-trigger instance). Reactive can work with fewer of the aforementioned stakeholders participating, while predictive will require collaboration from the entire ecosystem as well as enabling technologies (machine learning, in-vehicle connectivity, C-V2X).
We believe that while the reactive use cases are the nearest-term opportunities, it will be the predictive use cases that deliver the most transformative impact. We expect the opportunity will inevitably mature to a point where vehicles can act as commerce agents on our behalf – whether that's pre-ordering food or ordering vehicle parts. It will not require explicit traveler command, and will evolve into a self-sufficient 'things buying things,' intelligence-driven model.
Current and future stakeholders range greatly across these interactions, and could include automotive OEMs, automotive tier suppliers, telematics providers, parking operators, financial services, payment processors, municipalities, parking enforcement, gas and service station and dealerships. Potential future use cases associated with these stakeholders are shown below.
These smart assistant integrations will have important implications for vehicular commerce, conceivably enabling drivers to initiate and execute purchases without averting their eyes from the road. However, we anticipate there will be overlap and competition for those that own these partnership ecosystems. Will Alexa be the gateway to order pizza on its platform, or will the automotive OEM create its own commerce network?
Potential use cases
Putting aside all of the aforementioned engineering and cross-domain challenges, and the lack of current mass-market solutions, the addressable vehicle-centric commerce market where payments play a pivotal role is poised for disruption, and has a never-ending list of potential use cases.
Segmenting these use cases can be thought of as reactive (action is made based on a vehicle-trigger instance) vs. predictive (action is made before a vehicle-trigger instance). Reactive can work with fewer of the aforementioned stakeholders participating, while predictive will require collaboration from the entire ecosystem as well as enabling technologies (machine learning, in-vehicle connectivity, C-V2X).
We believe that while the reactive use cases are the nearest-term opportunities, it will be the predictive use cases that deliver the most transformative impact. We expect the opportunity will inevitably mature to a point where vehicles can act as commerce agents on our behalf – whether that's pre-ordering food or ordering vehicle parts. It will not require explicit traveler command, and will evolve into a self-sufficient 'things buying things,' intelligence-driven model.
Current and future stakeholders range greatly across these interactions, and could include automotive OEMs, automotive tier suppliers, telematics providers, parking operators, financial services, payment processors, municipalities, parking enforcement, gas and service station and dealerships. Potential future use cases associated with these stakeholders are shown below.
There are large numbers of use cases, because many of these concepts could be applied to transform business models for others in the commerce realms. Some are even looking further down the road through creative partnerships. Intel and Time Warner, for instance, are collaborating on virtual reality experiences in autonomous vehicles, which could usher in a new form of multimedia entertainment and related commerce opportunities.
Outlook
An early indication of what is capable can be seen through limited PoCs and smartphone-based applications that are indexed to the vehicle. This is not indicative of the major addressable opportunity for in-vehicle payments, but does shine some light on future use cases. As the car becomes increasingly connected, automotive OEMs will look for more avenues to monetize this connectivity and provide value-added services; while payments providers and merchants will ride along and look for new ways to interact and attract their customers.
Currently, many of the technology providers are in a favorable position to monetize this opportunity and control this ecosystem, whether it's in the short term through connected car mobile platforms (Android Auto, Apple CarPlay) or recent embedded in-vehicle integrations of smart assistants (Amazon Alexa, Google Home).
However, a true frictionless vehicle commerce experience will eventually cut out the mobile phone and other intelligent aftermarket devices as the technology itself is embedded into the vehicle. Although there are many noticeable challenges in accomplishing this in-vehicle payment utopia, the things-buying-things concept isn't too far off, as these stakeholders continue to converge.
Outlook
An early indication of what is capable can be seen through limited PoCs and smartphone-based applications that are indexed to the vehicle. This is not indicative of the major addressable opportunity for in-vehicle payments, but does shine some light on future use cases. As the car becomes increasingly connected, automotive OEMs will look for more avenues to monetize this connectivity and provide value-added services; while payments providers and merchants will ride along and look for new ways to interact and attract their customers.
Currently, many of the technology providers are in a favorable position to monetize this opportunity and control this ecosystem, whether it's in the short term through connected car mobile platforms (Android Auto, Apple CarPlay) or recent embedded in-vehicle integrations of smart assistants (Amazon Alexa, Google Home).
However, a true frictionless vehicle commerce experience will eventually cut out the mobile phone and other intelligent aftermarket devices as the technology itself is embedded into the vehicle. Although there are many noticeable challenges in accomplishing this in-vehicle payment utopia, the things-buying-things concept isn't too far off, as these stakeholders continue to converge.
David Immerman
Associate Analyst, Internet of Things
David Immerman is an Associate Analyst in 451 Research’s Internet of Things (IoT) Channel. He covers the smart transportation space and its various segments, including but not limited to fleet management, telematics, connected cars and autonomous vehicles.
Jordan McKee
Principal Analyst, Mobile Payments
Jordan McKee is a Principal Analyst leading 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers.
Christian Renaud
Research Director, Internet of Things
As Research Director of 451 Research's Internet of Things practice, Christian Renaud covers the ongoing virtualization and digitization of the physical world around us. For 25 years prior to joining 451 Research, Christian built nationwide networks at large and small enterprises, worked with Fortune 50 companies in the systems integrator channel, built products at Cisco Systems and ran the company's New Markets and Technologies team.