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28. November 2017

From diesel to dividend

How Volkswagen is developing new financial services

With a tidy investment of $ 500m, Volkswagen Financial Services aims to develop and offer new financial products, mainly mobile services. Again, traditional banks are lagging behind.

Digital expansion into future markets

Keep your eyes on the road: Volkswagen wants to heed this old adage in new ways. According to latest plans the group’s finance subsidiary wants to invest half a billion Euros into the expansion of mobile payment services. According to “Handelsblatt” the number of contracts is to be increased from 18.2 to 30 million.

For many years Volkswagen Financial Services has operated successfully in the areas of financing and leasing cars, proving a car manufacturer can also handle adjacent fields of business. In a time where several sweeping changes are just around the corner for the car industry Volkswagen are targeting new areas of business in the finance sector.

Four steps ahead of the competition?

Volkswagen is adapting four trends:

  • Cities are confronted with a steady rise in traffic and are forced to optimise management of space. This also involves stationary traffic – management of parking space is getting more intricate but has also evolved into a nice source of income. This creates a demand for clever mobile payment systems.
  • Another trend is traffic control via road tolls, as already implemented in London or Stockholm. Via different rates the flow of vehicles can be directed according to the time of day. In the medium term many cities need an efficient toll system. Here, too, a multitude of payments needs to be managed cleverly in order to earn money.
  • The paradigm shift concerning propulsion systems – away from combustion engines and towards e-mobility – opens up new areas of business for financial service providers when it comes to recharging cars. The simpler the payment process for recharging, the more customers will warm to the idea.
  • Trend number four is the streamlining of payment systems for traditional gas stations. The cooperation of Shell and PayPal may become a model for other market players: paying for gas from the interior of the car, without having to set foot into the salesrooms. A car manufacturer can implement clever features to this end into the navigation system.

Key requirement for all four areas is ease-of-use of the payment system. If the practical application is integrated in a manner suitable for daily use, millions of payments can be handled day after day.

Recognising new fields of application

After taking a disastrous wrong turn with emissions compliance, Volkswagen could now show that it can actually come up with and implement practical solutions. One fascinating aspect is that new business areas would not only emerge for Volkswagen and other car manufacturers. Traditional banks would also be in a position to offer digital solutions – after identifying those areas where financially relevant changes are taking place.

These few simple questions help:

  • In which areas are big changes imminent?
  • In which areas is time an especially valuable commodity? Where are people willing to pay for simplified processes, thus saving time?
  • Which areas are so stressful that people would gladly pay for a fee-based tool which simplifies unavoidable processes?

The area in this case would be – road traffic.

Volkswagen Financial Services is not necessarily the only player in the field of mobile payment services for the traffic sector. Perhaps energy companies hit on the idea of offering their own payment systems for e-mobility and recharging stations? Maybe in the form of RWE Financial Services or Vattenfall Payment Systems? Right now the market is in flux. And traditional banks have the opportunity to stake their claim – alone or in a partnership. They just have to realise it.


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