With the rapid proliferation of fintech solutions, one thing is becoming clear: a business need not be in the financial sector to get a piece of the action. Nowhere is this more apparent than in the connected car marketplace.

Connected cars allow drivers to make payments for goods and services from their vehicles, paving the way for car manufacturers to step into financial services. Volkswagen is one such manufacturer that has created a financial services platform to turn its vehicles into digital wallets. Now J.P. Morgan is taking over a large share of their payment platform and looking to expand it to other sectors.

Unfortunately, the automotive industry has been hard hit during the pandemic, and shortages of crucial tech could negatively impact their ability to continue to develop connected car technology. Even with some government intervention to combat supply chain woes, the industry may be feeling the effects for years to come.

We’ll take a look at J.P. Morgan’s impending deal with Volkswagen and try to predict what’s next for the platform and the connected car market.

What Are Connected Cars?

There is no doubt that cars are getting “smarter” and better connected, with backup assistance, bluetooth connectivity, and automatic steering to prevent accidents. Now, they can make payments too with in-vehicle payment services. The technological advances which enable the Internet of Things (IoT) and edge computing now make it possible to process payment data remotely, even from inside a car.

In-vehicle payments can be used to pay for tolls, gas, parking, and even food and drinks without getting out of your car. And as can be expected with any such advancement, the implications for other industries are worth watching. Connected cars require a wide range of parts and capabilities that other industries can capitalize on. And that’s not to mention the wealth of data generated.

As connected cars become more commonplace, car manufacturers and their partners will hold incredible amounts of data about people’s movements, purchases, and preferences. This data, while undoubtedly useful, will also expose connected cars to privacy risks. Despite these risks, connected cars are a marketplace of great potential that many businesses are clamoring to get in on.

J.P. Morgan’s Partnership With Volkswagen Payments S.A.

In the latest example of J.P. Morgan’s future-facing approach toward financial decisions, the finance giant plans to acquire 75% of Volkswagen's payment platform. The transaction is expected to be finalized in 2022, and J.P. Morgan has already hinted at some changes they will make to the platform.

Volkswagen Payments S.A. was established in 2017 in Luxembourg. Its payment platform offers the auto industry services like car purchases and leasing, fueling and charging (for electric cars), in-vehicle payments, insurance, parking, and in-vehicle entertainment subscriptions.

As it is now, J.P. Morgan’s Wholesale Payments business offers payment card and merchant services, corporate treasury services, and trade finance. They report that Volkswagen’s platform is “a natural fit” to allow them to enter the automotive industry and also express interest in expanding beyond this industry in the future.

Future Outlooks

J.P. Morgan’s acquisition of Volkswagen’s payment platform seems a promising pairing, particularly since partnerships allowing big businesses to dive into fintech are becoming somewhat of a trend. But what are the outlooks for the connected car market in general?

Before the COVID-19 pandemic shook things up, the connected car market was projected to reach $180.9 billion by 2025. However, the pandemic has disrupted automotive production and supply chains, with many major manufacturers suspending production this year.

Studies show that more than 90% of SMEs in sectors like logistics and construction suffered revenue losses as a result of the pandemic. Businesses of all sizes struggled with supply chain breakdowns, shipping delays, and more, so it is no surprise that the automotive industry is similarly impacted.

Take, for example, the semiconductor shortage plaguing the industry. For nearly a year, the computer chips needed to power connected vehicles have been in short supply. Auto giants including Volkswagen are suffering financial losses due to halted production, and the chip shortage is forecasted to last until at least 2023. The global connected car market size post-COVID is now projected to reach USD 166.0 billion by 2025, but this will depend on how quickly the overall automotive market can recover.

That being said, the pandemic may also have some positive impacts on the rise of in-vehicle payments. Contactless payment methods have become increasingly popular, so deals like J.P. Morgan’s may be just what the industry needs. J.P. Morgan reports an intention to use the alliance between the two firms to develop the platform for new markets as well, so they may not be limited by the auto industry’s recovery.

What’s more, this isn’t Volkswagen’s first partnership to facilitate such innovation. Recently, Volkswagen joined with Amazon Web Services (AWS) and Siemens to offer its industrial cloud as a B2B service. This will allow partners to both optimize their own operations and contribute to Volkswagen’s system.

This decision comes at a time when AI is in high demand for vehicles. Car manufacturers are eager to have Amazon’s Alexa or similar voice assistants in their products. They are also paying increasing attention to the security risks associated with these innovations.

Starting in 2022, a United Nations regulation will require that connected cars sold in the EU, as well as other countries like Japan and South Korea, must maintain certain safeguards in auto manufacturers to decrease the risk of hacks. According to recent statistics, most developers possess less than five years of industry experience. So, security is even more important when developing software, particularly applications for vehicles where the cost of a mistake could be deadly.

We can hope that J.P. Morgan’s financial expertise will help the Volkswagen payment platform securely serve the needs of the automotive industry and any other industries they break into. We can also hope that similar platforms prioritize cybersecurity in the coming years to maximize the benefits and minimize the risks of connected cars.

Why It All Matters

The J.P. Morgan - Volkswagen partnership is just one example of a recent trend towards mainstreaming digital payments. Whether it’s payments made with cryptocurrency or purchases from your car’s dashboard, digital payments are here to stay. And while it may be suffering some setbacks, the connected car market has a lot of potential to continue the digitization trend with in-vehicle payment solutions.

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