JPMorgan thinks a blockchain can help it keep track of the automobile inventory it finances for car dealers – and prevent them from pledging the same cars for different loans.
The bank’s wholesale car financing arm has filed a patent application describing a distributed ledger-based version of floorplan lending, a revolving line of credit that allows car dealers to borrow against retail inventory.
Every
car sold in the U.S. has an individual vehicle identity number (VIN).
The bank reckons that these can be anchored to a blockchain, assisted by
a range of other telematic and geolocation sensors, which can remove inefficient manual pain points around auditing inventory on the dealership floor.
“The
floorplan lending process involves periodically doing a physical
inspection or audit of all the inventory on the dealership’s lot,” said
Kevin Point, head of research and development at Chase Auto. “That means
that a human being actually travels to the dealership, identifies the
vehicles and then reconciles that inventory, if the loan’s outstanding,
on both the dealer’s and the bank’s accounting system.”
Banks like JPMorgan, which have been busy testing and heads-down building blockchain systems for the last several years, are now clearly looking for practical opportunities that will see their bottom line improved by the tech.
About
17 million new cars are sold each year in the U.S, said Point, and when
you add in used vehicles there are many millions sitting on floorplan
lines of credit. Tracking them on a distributed ledger “will achieve
cost savings over time. We believe these could be significant on an
industry-wide basis,” he said.
The move is a slight departure for the Quorum blockchain, a private variant of ethereum developed by JPM. Previously, Quorum was used solely for abstract financial operations, issuing debt or linking payment networks of correspondent banks and such like. By contrast, the new Chase Network of Assets involves verifying physical objects.
Christine
Moy, blockchain lead at JPMorgan, described it as a pilot in that it’s
being tested with real dealership partners, but not in production yet.
She also said Network of Assets could be applied more broadly, adding
that JPMorgan is speaking to automakers about the blockchain system, but
was not at liberty to say which ones at this time.
“Not
only is JPMorgan and Chase Auto seeking to solve its own problem,
basically it will benefit the vehicular and equipment industry at
large,” Moy said. “The Network of Assets is the foundation for this
particular application and use case, but can also be the foundational
piece for many other value-added applications and services for auto
manufacturers, other banks and finance companies, and dealerships,
related to devices with telematics connectivity.”
As
well as allowing much more in the way of real-time risk management, the
DLT system is designed to prevent a practice known as “double
flooring.”
“This
is when accidentally (or fraudulently) a dealership may pledge one
vehicle as collateral for one floorplan contract to one bank, but also
pledge the same collateral for another floorplan contract with another
bank,” Moy said.
JPMorgan’s
idea is not entirely novel. For instance, Tata Consultancy Services,
part of the Indian multinational group, has also been looking at blockchain for floorplan financing.
However, JPMorgan’s Quorum efforts are well established with a vibrant community around the tech, and it also provides the potential interoperability with tokenized payment systems such as the bank’s embryonic JPMCoin in a next-generation blockchain world.
For now, wholesale auto financing is a solid start, said Point.
“Because of the unique identifiers, telematics, the auto industry and its counterparties are a great way to get adoption out there quickly and that will drive efficiencies into different areas of finance,” he said.
Read more at: https://www.coindesk.com/jpmorgan-tests-private-blockchain-to-track-auto-dealer-inventory
