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01.24.17

Carmakers Are Showing Love to Payments, but How Far Can this Trend Go?

Not content with simply getting people from points A to B anymore, carmakers recently have been diving into mobile wallets and parking and payment apps, not only through partnerships but through acquisitions. The trend seems likely to gain speed in the coming year but there remain questions about how far automotive firms can go with payments, and what constitutes the best path.

Last week, Daimler Financial Services, which operates under the same corporate umbrella as the Mercedes luxury car brand, said it will build the “Mercedes pay” digital wallet via its acquisition of Luxembourg-based PayCash Europe. Volkswagen earlier this month said that its financial services arm will buy Canada-based parking payments firm PayByPhone, which enables drivers to pay for parking via its mobile app. And Honda and Visa are testing a system that enables a driver to pay for fuel and parking from inside Web-connected cars. All the moves contribute to the broader trend called Internet of Things (IoT), via which cars, appliances and other objects will become “smarter” through Web connections, enabling easier payments, automatic ordering of products and other tasks.

Those deals show that car makers are working to “to pivot revenue streams so they are not as reliant on one-off sales, but have a recurring revenue stream,” says Phil Sealy, senior analyst at ABI Research. “The acquisition by Mercedes is another play in the wider and emerging IoT payments market. Automating payments for tolling, parking, fast food collection are just a few examples of use cases where automotive vendors can and add value.”

That does not mean Daimler and its rivals will easily achieve success, though.

“There’s a potential for over-saturation of mobile pay apps” says Keir Walker, senior research associate, Aberdeen Group. “Online payments are easier than ever now, via apps found on smartphones. So, the question that bears asking is: What is the user’s benefit of using Mercedes pay? If the answer to this is discounted services via PayCash partnerships, while this might be attractive, this is a somewhat contrarian [concern] of the typical Mercedes customer, who is more prone to be less motivated by savings and more motivated by ease.”

The best path

It’s unclear what Mercedes pay will enable, but recent reports suggest that cab booking and vehicle sharing could be among its early capabilities. Not all car companies are looking to acquire payments providers. Many already are partnering/. Other payment- and Web-related enhancements to cars are on the horizon Ford Motor Co., for example, is working with Amazon on a system that would enable drivers who are Amazon consumers to control garage doors and porch lights, access music, shopping and appointment lists, and perform other tasks while in their cars or their homes. And all this is happening as self-driving cars race closer to reality.

That would seem to put a premium on mobile parking services—in the future, a consumer in a hurry to make a movie or restaurant reservation on time might program a car to find and pay for parking on its own, and then return later for pick up. But while Volkswagen is trying to make parking more efficient and mobile in Germany, doing so in the U.S. presents difficulties, given the relative lack of standardization when it comes to mobile parking here, Walker says.

That said, at this early stage, he has more confidence in the mobile wallet path for automotive companies than mobile parking apps. That’s because mobile wallets enable and encourage more types of spending—including impulse buys—than do parking apps. “As the future of automobile driving looks to ever expand the experience, mobile wallets have the potential to increase customers’ ability to spend,” he says. “While I am not overly optimistic in the viability or true customer benefit of a Mercedes pay app, I do like the flexibility of options it affords more than the parking app model.”

Even so, a big potential roadblock stands before the continued pursuit of payment capabilities by automotive firms: Debt, which could limit future acquisitions. “Car companies often are heavily leveraged and to potentially take on new debt for potential acquisition of this technology is a tall order,” Walker says. “That’s not to say there isn’t space for licensing deals and partnerships—which I believe is far safer means to penetrate this vertical.”

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