JPMorgan, the famous American multinational investment bank and financial services holding company has affirmed its belief in blockchain, mentioning, the technology can help keep track of the automobile inventory it finances for car dealers. As per JP Morgan, it will also help prevent them from pledging different loans for the same car.
A patent application was also filed by the bank’s wholesale car financing arm that lays out a distributed ledger-based version of floorplan lending, a revolving line of credit allowing car dealers to borrow funds against the retail inventory.
A car that gets sold in the US receives an individual VIN (vehicle identity number), and the bank looks forward to anchoring them to a blockchain. This process will further be assisted by a range of other Telematics and Geolocation Sensors. The use of these sensors is said to remove inefficient manual pain-points around the auditing inventory on a dealership floor.
According to the words of Kevin Point, head of R&D at Chase Auto, the floorplan lending process involves carrying out a physical inspection or audit of an entire dealership lot. This would mean a person is actually traveling to a dealership, identifying vehicles, and finally reconciling the inventory to determine if any loan is outstanding on the dealer’s or the bank’s accounting system.
Banks including JP, which have always been busy focusing heavily on testing and building blockchain systems for the past several years are now looking for practical opportunities that will help improve their bottom line.
“About 17M new cars are sold each year in the US, and when we add-in used vehicles, a million others are sitting on the floorplan lines of credit. Tracking them using a distributed ledger will help us save costs over time, and we believe this can be significant on an industry-wide basis”, said Point.
This move is a slight departure for the Quorum Blockchain, which is said to be the private variant of Ethereum developed by JPM. Earlier, Quorum was used for abstract financial operations like issuing debt, and linking payment networks of banks, etc. Whereas, the new Chase network of assets involves verifying physical objects.
Christine Moy, the blockchain lead at JPMorgan, describes the project as a pilot in its being tested with real dealerships that are not in production yet.
“The network of assets can be applied on a broad level. We are speaking to automakers about the blockchain system, however, the list of these automakers cannot be revealed as of now. Not only we, and Chase Autos are seeking to solve our problems, we also hope that the new system will impact the vehicular and equipment industry positively”, said Moy.
She further indicated that the network of assets may be a source for this particular application and use case, but can also serve as a foundation for many other value-added applications and services for auto-makers, dealerships, banks, and other financial institutions. She further said that the system is being designed to prevent double-flooring while allowing its users to manage risks in real-time.
“Double flooring is said to occur when a dealership pledges a vehicle as collateral for a single floorplan contract to one bank but also pledges the same collateral for another floorplan contract to another bank”, Moy said.
The Final Word
TCS, a part of the Indian multinational group, TATA, has also been looking at blockchain for floorplan financing. Therefore, it won’t be true to say that JP Morgan’s idea of floorplan is entirely novel. However, JPMorgan’s Quorum efforts are well established with a vibrant community around the tech. Also, it provides the potential interoperability with tokenized payment systems in a next-generation block-chain world, such as the bank’s embryonic JPMCoin.
Auto-financing is a solid start at present. Because of the unique telematics and identifiers, the auto industry and its counterparties are a great way to get absorbed in the blockchain world quickly and drive efficiency into the areas of finance.