As the mobility sector continues its digital shift with a variety of vehicle sales platforms expanding capabilities — particularly into financing — the complexities of vehicle financing and the reams of paperwork generated in the process are prime for innovation.
That modernization is now happening, powered by blockchain smart contracts that reduce the paper burden to essentially zero while accelerating financing decisions from days to minutes.
In a conversation with PYMNTS CEO Karen Webster, Taimur André Rashid, CEO of Berlin-based vehicle financing firm Auto1 FT, discussed recent moves into smart contracts running on the Ethereum blockchain, the advantages for dealers looking for financing to buy cars to put into inventory and, ultimately, for consumers.
“A lot of the financing companies and even the car sales platform have flashy front ends, nice websites, but the processes in the background are still old school,” Rashid said. “We had to reinvent ourselves completely. The only way to go down this route is to be fully automated and be in a position where we can supply anybody in the market. We’ve done that.”
Auto1 first announced the move to smart contracts running on Ethereum in July, in a bid to streamline auto finance that continues to be the most burdensome aspect of car buying — combining all of the various contracts across platforms into one contract.
“We’ve fully converted to smart contracts,” he said. “Every new vehicle that we’re onboarding to finance [for dealer inventory] is a smart contract, and we won’t be turning back.”
Fast, Simple and Digital
Dealer integration into the Auto1 blockchain financing solution is handled through an online portal that provides the front-end vehicle shopping experience. For them, being on the “blockchain” is entirely invisible aside from the speed associated with being underwritten and getting a decision in five to eight minutes, not three to five days.
“Our whole philosophy, our mission and vision, is to make it fast, simple and digital,” Rashid said. “If you see our dealer portal, the front end looks super simple, and that’s the whole idea. They have a few data points, they can click into different menus,” which will soon be “a one click solution” along the lines of Amazon.
Auto1 FT is plugged into the network of 7,000 dealers that comprise AUTO1 Group, Europe’s largest online wholesaler of used cars. At present, Auto1 FT is providing financing for dealers to buy used car inventory. Eventually, the company plans to offer consumer financing.
After ramping up with wholesale, Auto1 plans to bring fully automated financing to retail customers. Rashid said the consumer sales will come organically through the dealer network.
Five Minutes to Financing Decisions
Webster likened the blockchain approach to mobility financing to the connected economy, and Rashid said Auto1 FT’s model for growth is aligned with the concept.
Understanding that the best way to capture the market is with a demonstrably better end-to-end experience, Rashid said fully automated auto financing does this, at scale and with speed.
“We’ll get a B2B dealer financed in less than five minutes,” he said. “That may not sound that quick, but actually B2B in the European markets where you have to jump through a lot of regulatory loopholes, that is very fast.”
By contrast, he said the decision window for traditional bank financing is roughly five days for vehicles costing an average of 14,000 euros (about $15,000).
As to how blockchain financing does or does not change underwriting rules, Rashid said: “To be fully automated and digital, we had to go down the route of open banking, reading out the statements of the different dealers to get an up-to-date overview of their credit quality. We have a fully automated credit check on the individual dealers.”
Auto1 has teamed with a credit information and open banking software supplier that operates throughout the European Union “because we don’t want different standards when we go into Spain, for example, next year,” Rashid told Webster. This enables the company to check an account, do fraud checks and upload large PDF statements still common in EU car sales.