Every day, auto manufacturers, sellers and insurance providers process millions of payments through bank transactions, web and mobile services and cash operations. While proven and familiar, these payment channels share the same imperfections: excessive paperwork, constantly increasing transaction fees, lack of transparency and cybersecurity risks. The blockchain might be the cure for these ills.
Having promising potential as a financial tool, blockchain technology can be successfully implemented to handle payments across the automotive industry, including for:
• Car manufacturers and vehicle sellers.
• Ridesharing and carsharing services.
• Integration with other technology.
In this article, I’ll discuss how the blockchain can improve the security and performance of financial operations in three use cases. I will also share some insights from my company’s recent projects to look at potential use cases and explain the benefits and challenges.
Building And Selling Vehicles
For people working in car sales and manufacturing, lack of operational transparency is a key struggle. By implementing blockchain technology for payments in the automotive industry, you can create a unified platform to easily track down and pay for vehicle parts and manufactured vehicles as well as related services.
In contrast to traditional paper-based systems and digital databases, blockchains are immune to accidental data loss or deletion. Leading car manufacturers have even joined forces and launched the Mobility Open Blockchain Initiative (MOBI) to explore the potential of blockchains in the automotive industry.
There are two approaches to implementing blockchains for auto manufacturers and sellers.
1. Deploy a blockchain-based supply chain management system to process payments for and track the movement of raw materials, vehicle parts and even fuel for gas stations. BMW, Mercedes-Benz and General Motors are already looking into similar solutions. My company has worked on several blockchain products of this type, and they all have shown great results in adding transparency and traceability to the movements of both goods and finances.
2. Enhance your current system with a specific blockchain-based service or feature. For example, you can leverage a blockchain as data storage to make sure no critical records are lost, speed up car value calculations or automate some of your agreements using smart contracts.
Ridesharing And Carsharing
The popularity of ridesharing and carsharing services is increasing as owning a car becomes more expensive than sharing one (paywall). But what can make these services truly shine is the blockchain’s potential for process automation and fraud prevention.
The risk of fraud is one of the biggest challenges for both providers and recipients of mobility services. With smart contracts, a blockchain can help these two parties create binding financial agreements that will be executed with a guarantee after all agreement conditions are satisfied.
In particular, smart contracts can be used to automate processes like rental application submissions and payments. My blockchain development team built a solution with balance-locking functionality that works as an additional fraud prevention measure for car owners and customers. You can also use a blockchain to store an immutable copy of all rental histories, which will be useful during investigations of car incidents or insurance claims.
Integration With Other Technology
Beyond smart contracts, you can also consider combining blockchain with other technologies. You could, for example, integrate blockchain with Internet of Things (IoT) technologies to enable fast service delivery for both drivers and passengers. These technologies offer many exciting potential use cases, ranging from blockchain-based payments between autonomous vehicles to toll road payments, online shopping and food delivery.
In my company’s experience with building a blockchain platform with integration with IoT systems, we found this platform had some technical peculiarities, such as the need to generate a new address each time funds are transferred to a new destination, but using it also allowed us to automate and speed up blockchain-based payments.
Three Important Challenges
Blockchain solutions offer multiple benefits to the automotive industry payments, from easy-to-track operations to tamper-proof transaction records to reduced transaction fees. But there are three factors, in particular, that deserve extra attention when developing any blockchain-based product.
• Data privacy. You need to secure your company’s sensitive information from disclosure. To do so, adjust the transaction visibility settings.
• Code quality. The blockchain technology sets code quality standards bar very high. Saying nothing of high risks of financial losses, it’s both difficult and costly to fix smart contracts after their deployment. The contract may also perform poorly and be challenging to support if its code is redundant or has a lot of inconsistencies.
• Subcontractor engagement. Before moving your financial operations to a single blockchain-based platform, you should also check if all your vendors and subcontractors can and will join it as well.
While the blockchain still lacks clear governance, you can always use applicable cybersecurity and financial industry standards and regulations as a basis for designing a secure and compliant solution. With these challenges in mind, the blockchain has opened up numerous potential use cases to solve the struggles of traditional payment methods.