New revenue opportunities in insurance and in-car services will help auto OEMs widen margins, finds Frost & Sullivan’s Mobility team

LONDON – 28 June 2017

The thinning margins in the automotive industry are making a strong case for vehicle original equipment manufacturers (OEMs) to explore revenue streams beyond sales and periodic maintenance. As customers become accustomed to digital transactions, OEMs will look to tap the hitherto underutilised fintech services segment to generate additional revenues. Active partnerships with fintech companies will enable OEMs to offer multiple use cases that enrich in-vehicle experience, which will ultimately influence customers’ purchase decisions.

Fintech in the Global Automotive Industry, Forecast to 2025's study examines key application areas of fintech in the automotive industry: leasing and finance, insurance, digital retailing, digital payments, and automotive services. Europe, followed by North America, is anticipated to lead in digitising finance, and North America, followed by Europe, in automotive service investments. The average investment in fintech is estimated to grow from $16 million in 2016 to $230 million by 2025 with the emergence of digital car retailing and new business models in insurance.

“As new subscription-based fintech services grow and vehicles become more widely connected with drive-thru restaurants and fuel stations, auto OEMs will enthusiastically adopt monetisation platforms and mobile wallets for service execution,” said Frost & Sullivan Mobility Research Analyst Isaac Abraham. “Technology companies such as Google, Whatsapp and WeChat are expected to lead the digitisation of on-demand convenience services, while OEMs ensure that revenues stay within the core automotive ecosystem.”

The synergies between automakers and technology companies will power next-generation financial service infrastructure. Even though fintech partnerships with big banks slow down transactions, it is important to note that banks manage almost 32% all new vehicle financing in North America. Besides:

  • The competition for market share between banks and captives finance companies is expected to digitise new car sales and result in a $1 trillion auto financing market; and
  • Fintech will monetise services based on subscription models and on-demand vehicle features.

“Both fintech companies and auto OEMs will need to arrive at a uniform service delivery system to encourage mass adoption of services across vehicle models, demographics and regions,” noted Abraham. “As the availability and ease of transaction through digital platforms increase, OEMs will be able to achieve a 3-4% increase in sales by developing advanced digital leasing and finance tools. Overall, automotive manufacturers and suppliers have demonstrated an eagerness to expand their fintech portfolio and pilot finance and insurance use cases by 2018, and in-car convenience features by 2022.”

Source: Frost & Sullivan

Illustration Photo: Jaguar Land Rover Connected and Autonomous Technology (credits: Jaguar MENA / Flickr Attribution 2.0 Generic (CC BY 2.0))

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