“In-vehicle payments” is currently evolving at an incredible pace, providing drivers the opportunity to use their cars as a means of payment while simultaneously becoming a very promising business opportunity in the automotive industry. As in-vehicle commerce becomes ever more convenient, the customer demand for in-vehicle payments is increasing as well. A study conducted by TechInsights reveals that 56 percent of drivers globally rank in-car payments as a top priority when it comes to connected car service features.1 It is estimated that by 2030, 600 million connected cars will generate $537 billion in in-car transactions.2
To capture this additional value, automakers around the globe are beginning to tap into the world of financial transactions and accelerate the development of in-vehicle payments. However, despite the positive outlook, the ecosystem for in-vehicle payments remains fragmented. In addition to explaining the current status quo of the in-vehicle payment market, this article provides key insights into what is needed to facilitate a thriving ecosystem and how market players can enjoy success in this newly emerging field of business.
Different use cases ranging from software upgrades to shopping and entertainment
There is currently a great deal of interest on the part of original equipment manufacturers (OEMs) for the field of in-vehicle payments. According to Uli Kiendl, CEO of Ryd, “We see a lot of hype and an increasing number of OEMs interested in in-vehicle payments—especially premium OEMs, who can distinguish themselves from volume brands by offering new features.” OEMs are seeking to satisfy customer demands by developing three complementary use case segments. The first segment is called “functions-on- demand” and refers to all in-vehicle payments for additional software upgrades after vehicle delivery, such as comfort and driving features. The second segment is referred to as “vehicle-related payments,” which describe the in-vehicle payment of all additional maintenance costs during ownership, such as fueling and charging. The last segment, “non-vehicle payments,” relates to “sell-through-car” mobility transactions, which aim to use shopping or entertainment offers to monetize the attention of vehicle passengers—effectively turning the car into a mobile e-commerce unit.3
It is possible to draw distinctions between these use case segments regarding not only the services they provide but also their demand potential and their time horizon for implementation. Functions-on-demand use cases show the smallest demand potential of the three: According to a Civey study conducted by Automobilwoche, only 17 percent of drivers in Germany are receptive to using functions-on-demand service offerings, while 63 percent of participants flat out reject them.4 However, since these use cases are fully owned by the OEMs, there are initial solutions already in existence on the marketplace, meaning implementation can occur over a shorter timeline.
“Vehicle-related payments,” on the other hand, show the strongest demand potential. A GfK study carried out on behalf of Mastercard shows that the most popular use cases for in-vehicle payments fall into this second segment. Specifically, over 70 percent of participants in Germany are most interested in fueling, charging, and parking use cases, while roughly 60 percent of drivers could see themselves using in-vehicle payments for washing and toll services.5
Regarding the time horizon, vehicle-related use cases require the strong integration of third parties such as fueling station providers. Because some actors are already entering the market as intermediaries, it is realistic for these use cases to be implemented in the medium to long term. The last segment, “non-vehicle payments,” shows moderate potential for customer demand in Germany. According to the GfK study, nearly one in two drivers could envisage using drive-in services such as grocery pickup, in which the car handles the payment process automatically and without further intervention.5
Realization of the third use case segment is likely to be rather long-term because, as demonstrated by various failures in the past (e.g., GM ending its once promising in-vehicle “Marketplace” in 20229), the systemic integration with merchants is complex. In this context, the technological development toward autonomous cars needs to be considered as well: In the future, as we transition to autonomous transportation, all mobility-related payments will increasingly become connected to the car itself. Hence, the mass market adoption of autonomous vehicles represents a sort of cutoff point by which OEMs will need to have created well-functioning in-vehicle payment service offerings.
Untapped commercial potential due to a closed ecosystem
Making these use cases a reality requires multiple stakeholders with various roles within the ecosystem. On one side of the equation, the OEMs integrate the required hardware and software into their vehicles so as to enable in-car payment functions. Service providers, such as fuel and charging station providers, supply the products demanded for in-vehicle payments. In between the OEMs and the service providers, platform providers bundle a network of different service providers and leverage their competences by connecting multiple stakeholders.10 Lastly, financial services players make payment processing possible and ensure secure and reliable transaction processing for customers.
Despite the emergence of new business opportunities for in-vehicle payments, its commercial potential remains untapped because the ecosystem remains closed. Automakers currently attempt to maintain control over the payment experience, so as to fully capture any additional revenue potential as well as increase the security of payment processes. As a result, complementors have difficulty accessing the ecosystem, and the users’ in-vehicle payment experience is less seamless.
First movers are positioning themselves
In spite of this fragmentation, several first movers from different industries are already working on various approaches toward dominating the market and thus consolidating their competitive positions at an early stage. One of these first movers is Ryd, which was founded in 2014 and entered the industry as a platform provider. Ryd aims to aggregate fuel station providers in order to simplify the integration of fueling and charging processes into the in-vehicle payment experience. In 2020, the start-up closed a double-digit million funding round for its European rollout, which involved strategic partners, such as Mastercard and Mercedes-Benz, making significant investments in the company.6 Uli Kiendl, CEO of Ryd, highlights the importance of remaining technology or device agnostic as a key differentiator in the business: “If customers want to connect via CarPlay or Android Auto, they can easily do so using our Ryd pay app. However, our collaboration with Mercedes-Benz also demonstrates our ability to directly integrate into the car and we believe this native integration will be the future.”
Another player joining the marketplace is Visa, which has entered into a partnership with Mercedes-Benz with the goal of simplifying authentication processes. With its cloud-based tokenization approach, the required two-factor authentication is carried out biometrically via an integrated fingerprint sensor, making the driver experience more seamless. In February 2022, Vodafone also launched its Digital Asset Broker (DAB), which is essentially a decentralized platform aggregator that aims to take the world of connected devices to the next level. David Palmer, Vodafone DAB’s Chief Product Officer, on his company’s plan to spearhead the Economy of Things: “DAB aims to become the Google of devices by leveraging Vodafone’s global footprint in IoT.” DAB assigns the vehicle a digital identity using the SIM card, which allows it to authenticate and conduct automatic transactions via incorporated payment credentials on a SIM wallet.
Three roadblocks need to be overcome
Although the entry of first movers represents a positive development toward increasing the maturity of the market, there are still some roadblocks that need to be overcome in order to launch a “minimum viable ecosystem” and, ultimately, to drive commercial success. The first is that users need to be incentivized to actively share their vehicle data. By guiding drivers to their shops, merchants could leverage real-time contextual data to substantially increase their acquisition rate and users would benefit from tailored product offers and reward programs.2
The current ecosystem fails to take advantage of this potential because OEMs maintain full ownership of the generated data. The second roadblock relates to the lack of system standardization. The absence of industry-wide system protocols makes seamless integration between service providers and OEMs more complicated and limits the diversity of in-vehicle payment offerings. The third roadblock is that the revenue sharing models for in-vehicle payments currently in place are unbalanced. However, without appropriate revenue distribution driven by the data economy, third parties remain unincentivized to invest their time or effort and are therefore staying out of the ecosystem. With the absence of third parties, the industry lacks a diversified service portfolio. This begs the question: What’s in it for the customer?2
In order to implement a successful in-vehicle payment ecosystem, these are the roadblocks that must be overcome. Once these challenges are addressed and complementors are willing to contribute their expertise to the market, the in-vehicle payment experience will become seamless, and users will be able to derive real economic benefit. Currently, the revenue potential is forecasted to increase significantly, with the value of in-vehicle payments expected to reach $86 billion by 2025, up from just $543 million in 2020.7
A strong asset base is crucial to becoming a successful in-vehicle payment player
Success in implementing the ecosystem is directly related to the success of its stakeholders. With DAB, Vodafone has demonstrated how to profitably establish itself in the sphere of EoT by creating an open platform, which both acts as an enabler and seeks to attract innovative complementors. Vodafone has based its approach on two main requirements that should be considered success factors for OEMs wishing to enter into the in-vehicle payment market. First, an appropriate asset base needs to be established. With its global footprint of 160 million active IoT devices and more than 40 million SIM cards placed in vehicles, Vodafone certainly brings the right capabilities to implement a scalable EoT platform.3 Similarly, since the global connected car fleet is expected to increase from 250 million cars in 2021 to over 850 million cars by 2035, the appropriate critical mass is in place.8 OEMs must now leverage that asset base and their vast vehicle know-how to facilitate successful business opportunities for in-vehicle payments.
The second factor in becoming a successful player in the ecosystem is active collaboration with complementors. Taking the Vodafone example once again, the company has entered multiple, strategic partnerships with banks, service integrators, and technology companies such as IBM, Mastercard, HSBC, INTEL, and e-mobility service providers. David Palmer, Vodafone DAB’s Chief Product Officer, explains the underlying rationale as follows: “Having a sizeable, open, and decentralized ecosystem that attracts developers to build their own applications and ecosystems on top of the platform—thereby fostering innovation in directions that are currently unknown—is key in attracting the required user demand.”
The partnering approach makes it possible to achieve successful service offerings
Based on the Vodafone example, it becomes clear that OEMs must integrate complementors by using appealing revenue distribution and collaboration models in order to reduce stakeholder fragmentation and ensure the success of their in-vehicle payment service offerings. Especially in payments, OEMs lack the appropriate knowledge to create seamless experiences. David Palmer stresses the importance of contextual finance players as key complementors in the space of in-vehicle payments: “OEMs need to partner up with fintech because they can bridge the knowledge gap and have the right capabilities in place to add real value to in-vehicle transactions, thereby reducing the dominance of incumbent tech players when it comes to mobile transactions.” All in all, the partnering approach allows complementors to contribute their expertise and their ability to innovate, thereby expanding existing functionalities, addressing specific customer needs and ultimately making a successful service offering possible.
To thrive in the world of in-vehicle payments, it is essential to enable different stakeholders to affiliate with each other. Consequently, along the value chain, successful business gameplans should break silos and incentivize players to work together. Within this context, there is one business opportunity that relates to the facilitation of data marketplaces. As mentioned before, the lack of incentivization for customers to share their data is still a major roadblock for adoption. Creating a data marketplace would address user adoption issues by providing an intermediary platform that facilitates a regulated exchange between private sellers and corporate purchasers of in-vehicle payment data. In other words, both sides of the market would be incentivized to enter the ecosystem. Jorge Bento, CEO of Vodafone DAB, emphasizes the increasing significance of user incentivization: “Especially car drivers demand to receive a fair share of value for offering their data, thereby seeking to turn their vehicles into new sources of income.”11
Another major business opportunity that breaks the silos between stakeholders is the potential of car wallets, which enable users to designate different methods of in-vehicle payments. To ensure maximum user adoption, the car wallet must follow an open approach that enables all sorts of financial services providers to make their means of payment available. The technology is of major importance because it will determine who controls the evolution of the ecosystem, making it one of the main battlefields for in-vehicle payments. If OEMs fail to act now, they may not only lose out on additional revenue streams but also risk a situation in which tech companies take over this key functionality, thus restricting the open collaboration model within the in-vehicle payment ecosystem.
*Own calculations based on GlobalNewswire
Survey by TechInsights, “Connected Features Interest Survey,” March 2023
Worldline, “In-vehicle commerce is growing rapidly, but who owns the car wallet?” November 1, 2022
Interview with David Palmer, Chief Product Officer of Vodafone DAB, conducted on July 25, 2023
Automobilwoche, “Kaum Interesse an Functions on Demand,” April 11, 2022
Study by Gesellschaft für Konsumforschung (GfK), “In Zukunft auch mit dem Auto bezahlen,” September 2022
Sprit+, “Unternehmen: Mastercard und Mercedes-Benz investieren in Ryd,” January 17, 2020
Juniper Research’s whitepaper, “In-vehicle Payments—Resolving Fragmentation,” November 2021
Statista, “Size of the global connected car fleet in 2021, with a forecast for 2025, 2030, and 2035, by region”, September 28th, 2022
CNBC, “GM discontinues once-promising Marketplace app that allowed you to shop while driving,” February 18, 2022
Interview with Uli Kiendl, Chief Executive Officer from Ryd, conducted on August 7, 2023
Interview with Jorge Bento, Chief Executive Officer of Vodafone DAB, conducted on September 22, 2023
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