Transactions in Transit: The Road to a Blended Automotive and Payments Industry

As an emerging e-commerce experience, in-vehicle dashboards enable consumer-drivers to pay for a variety of goods and services—e.g., fuel to parking tickets to event tickets to takeout—without relying on a physical credit card or a mobile phone. According to industry reports, 135 million consumers spend $212 billion each year while commuting in cars. Aside from partnerships with various gasoline or retail brands such as Shell, Parking Panda, or GrubHub, automakers are also engaging with increasing frequency in collaborations with the payments industry, including Visa, MasterCard, and PayPal. Auto manufacturers in the last two years have also incorporated in-vehicle apps intended to streamline consumer payments, including Jaguar and General Motors’s offerings of apps to facilitate purchases of gas, coffee, or other retail goods. With the onset of self-driving cars, and the added conveniences arising therefrom, e-commerce transactions while in transit are projected to increase.

We believe these developments demonstrate the ubiquity of payments as the transportation industry integrates financial services for a new form of e-commerce; shopping on the road. This is a significant trend in coming months as businesses launch additional products involving multi-modal transportation, e.g., not just privately owned vehicles but ride-sharing services (Lyft), bike-share, scooter-share, and private plane programs. The ability of consumer brands to increase revenue by tapping into this subset of consumers will depend on the payments infrastructure available to consumers, retailers, and transportation companies as these trends continue evolving.

Privacy & Financial Regulation Impact: Key Developments to Watch

However, what does the intersection of automotive and payments industries mean for regulatory and consumer protection? The answer lies, in part, in the fact that both industries are heavily impacted by prevailing privacy and financial regulation at the federal and state levels. Some key developments to watch include:

Real-Time Payments. Regulators are working in tandem with private sector developments. While the Board of Governors of the Federal Reserve System oversees the payment, clearing, settlement, and recording activities in the financial system and monitors payment system risk, core processing and payment services providers and depository institutions (banks, credit unions) are working closely with The Clearing House on development of a new payments rail, the Real-Time Payments system. The goal is to ensure that all institutions can easily access the RTP network by 2020. The likely consequence of this is that the network will facilitate the ability of payments customers (whether corporate entities or consumers) to more quickly and securely engage in digital commerce. Based on current progress to date, the industry effort on RTP may be more directly and immediately impactful to the goal of facilitating higher quality in-transit payments than the work undertaken via regulatory sandboxes or payments innovation work conducted by agencies.

Consumer Data Protection Laws. By the same token, however, all actors in the transportation payments ecosystem—whether auto makers, consumers, banks, card networks, core processors, and IT service providers—will benefit from brutally clear perspectives on exactly how consumer data flows throughout the system. This flow is, fundamentally, what determines the triggers of many relevant consumer-protection laws such as the federal Gramm-Leach-Bliley Act, the federal Dodd-Frank Act prohibition against Unfair and Deceptive and Abusive Practices (enforced by the Consumer Financial Protection Bureau and/or the Federal Trade Commission), the Electronic Fund Transfer Act, the Fair Credit Billing Act, and state analogues to data privacy laws or the financial laws. Accordingly, as businesses encounter better opportunities to innovate, in selected scenarios it may be beneficial to avail one’s self of the trial disclosure programs or regulatory sandboxes offered by the regulators at both the federal or state levels. The Consumer Financial Protection Bureau is currently undertaking a revamp of its Office of Innovation Program under leadership newly installed following the change in Administration, and opportunities to enact lasting change that is beneficial to industry may be more palpable than it was under the Bureau’s prior program, formerly known as Project Catalyst.

Opportunity to Influence Policy. Moreover, the laws have not changed under the current Administration. Under Section 1032(e) of the Dodd-Frank Act, which has not been amended by Congress following the last presidential election, industry possesses remarkable opportunity to participate in a trial disclosure program that is in the process of enhancement to address the concerns of industry that were voiced under the Bureau’s first director, Richard Cordray. Because consumer disclosure issues often dovetail against UDAAP issues (and state law precedents concerning analogous FTC privacy issues), it may be a ripened moment for businesses engaged in innovation to extract benefits if any arise out of the Section 1032(e) program. After all, determinative questions concerning the existence of UDAAP (e.g., what did a driver “reasonably believe” to be the terms of use on a mobile device, or an in-car dashboard, or what risk of injury could the consumer-driver “reasonably avoid”) are inherently fact-specific, and as such, now may be a good time to influence federal policy while the door is open.

Either way, it is clear that as technological advances continue, the automotive and payment industries will work in tandem to prepare for the impact these laws will have on their businesses. It’s going to be a wild ride.

Arent Fox’s Consumer Financial Services group will continue to monitor developments in this area. If you have any questions, please contact Jenny Lee, or the Arent Fox professional who usually handles your matters.