ChinaTechNews reports on April 4 that German auto dealers are using the Ethereum blockchain to get around bank bureaucracy, speeding up dealer credit applications.
German car dealers and distributors have found a new use for blockchains – acquiring and financing their customers quickly and with less paperwork than traditional bank loans.
Using Ethereum smart contracts – computer protocols that facilitate, verify or enforce the negotiation of an agreement – dealerships can provide their clients with immediate access to fiat currencies through dealer credit applications.
But this family-owned dealership has embraced the blockchain by incorporating cryptocurrency into its auto finance services. The result? Shortening closing times on car loans using virtual money that’s seen a 1,400 per cent rise in value since January 2017.
How did Auto Dealers Start to Provide Financing with Blockchain?
Auto Schott isn’t alone. Auto dealers looking to provide financing for their customers are exploring blockchain technology, which serves as the backbone for digital currencies like Bitcoin and Etherium, to speed up transactions that now take days or even weeks.
Some even see the potential to develop smart contracts that let dealers finance their customers without the need for banks as middlemen.
“We see a lot of potential for this technology to speed up transactions and bring added security,” said Tobias Schneider, general manager at Auto Schott in Mainz. “It’s an opportunity we want to explore.”
Schneider is among about 50 exhibitors at the Auto finance & blockchain conference in Frankfurt on May 4 and 5, cosponsored by PwC and Blockchain-Lab.de, a German research group exploring potential applications for blockchain technology.
A blockchain is essentially an automatically synchronizing ledger of digital events that can be programmed to record virtually anything of value with the highest level of security.
When toying with the idea of using blockchain for car financing, one dealer said the thought was “a bit like asking if you should use a laptop for your bookkeeping.” But dealer interest has grown as banks and start-ups have validated the concept.
“Blockchain is an interesting technology, but several hurdles remain before it is standardized,” said Andre Murz, Auto Schott’s finance director, who is looking for ways to speed up financing transactions.
Fast Transactions Work for Dealer Financing
There are many benefits of using blockchain technology when it comes to auto financing for dealers, according to Christoph Auer-Welsbach, head of the Automotive & Transportation Practice at PwC.
“Using blockchain can provide dealers with real-time financing transactions that are secure and trustworthy,” he said.
Because blockchain uses cryptography to record transactions, it can save dealers time by reducing paperwork and proving the authenticity of a transaction from start to finish.
In addition, blockchain technology is more cost-efficient as banks don’t have to play as significant a role in the process. It could potentially allow dealers to finance their customers without banks.
“Banks charge fees of around 1.5 per cent for car financing, so going without them would be huge cost savings,” said Kevin Hanley, a senior researcher at Blockchain-Lab.de. “From the dealers’ perspective, blockchain is a way to circumvent their role as middlemen and provide financing themselves.”
In theory, lower transaction costs from blockchain could also translate to lower car prices for consumers. Lower prices, of course, could stimulate the overall car market and help German automakers stay competitive in a global environment where new players like Tesla are shaking up the industry.
Leading in Blockchain
Blockchain technology seems to be an option for car dealers, and the big question is which country will lead this?
Germany could be a potential candidate as they seem to take quite a lead in this space. Blockchain has been incorporated into internet finance, the Internet of Things, and retailing sectors, and it appears that the automotive industry will also take advantage of blockchain technology.
The main area where blockchain will be beneficial is in finance transactions, especially with cryptocurrencies on the rise and interest by car dealers, which should provide some incentives for them to look into this option.
The impact of blockchain on the automotive sector is unclear, but it’s certainly a trend that we’ll all have to observe if you are interested in blockchain technology.