Telematics tools and technology are rapidly becoming ubiquitous, with an accompanying boom in car-generated data, but what are the actual benefits for the motor finance industry and its consumers? Chris Farnell reports.

Telematics is just one front in the ongoing Internet of Things revolution, which forms part of the gradual process of keeping us all online, all the time.

However, while it might sound scary as a catch-all term, once you get into the nuts and bolts of it you find a mix of technologies that we already commonly use.

“Telematics is a general term for a range of devices that are able to transmit data wirelessly. In the fleet industry, this can include GPS-based navigation systems, vehicle tracking and even automated safety systems and insurance products, all of which are widely used in fleet management to improve efficiencies,” explains Rhys Harrhy, connected car product manager at ALD Automotive.

As Richard Barlow, CEO and founder at telematics company wejo points out, telematics is more of an evolution than a revolution in terms of the ongoing trend towards connectivity.

“The unrelenting growth in connectivity is creating an explosion of vehicle-generated data that is increasing in both volume and sophistication,” Barlow explains.

“This data has huge value for drivers, auto manufacturers and many different kinds of business. Telematics can be used to support business decisions on how to build customer retention, create better experiences for consumers, improve driver safety, and bring in new revenue streams to support the marketplace and empower businesses to grow.”

Well-deployed telematics can allow finance and fleet management companies to monitor a car’s mileage and fuel consumption, track the driver’s behaviour, and be constantly aware of the car’s location.

What’s In It For Finance?

In this day and age, any company can see the advantages of having more visible data about their customers.

As Thomas Becher, vice-president of business development at TomTom Telematics, points out: “Companies can manage these assets and better understand, for example, mileage. You can see when a car is due for replacement, even launch a process to inform a customer that a car will be out of a leasing contract, for instance.”

Telematics offers lower risk when it comes to issues such as vehicle damage, allowing businesses to respond far more quickly when something happens to one of their vehicles. As well as streamlined maintenance processes, telematics can also help build a comprehensive data picture for finance companies. While much of this is data that finance companies would normally be able to gather over time, telematics offers an instant and ongoing stream of data in real time.

“It opens the door to predictive maintenance, and more tools to better manage these vehicles,” Becher notes.

Harrhy adds that while the improved efficiencies telematics provides are certainly part of the package, they are by no means the be all and end all of the benefits these tools can provide.

“They can also be used for the automated and accurate capture of mileage data that meets HMRC guidelines, mitigating risks such as driving without a break or driving for long periods each day, and reducing erratic driving behaviours,” he says.

“Other advantages of using telematics include managing prolonged instances of engine idling, reporting quickly and easily on CO2 output to meet CSR requirements, and the ability to pinpoint vehicles when needed to allocate resource effectively.”

Barlow, meanwhile, goes further still, pointing to the vast potential for innovation to which telematics and the data it provides can open the door.

“Telematics is driving innovation in a number of industries. For consumer finance companies, one of the most pertinent opportunities will be in depreciation risk management.”

One of the potential applications Barlow describes is a “pay as you go” finance model, whereby drivers pay for each journey. This is made possible by collaborating with mobility data specialists such as wejo to provide journey mapping.

Barlow explains: “This would allow drivers to pay for what they use, instead of paying a flat fee per month for hire purchase models.

“Similarly, for drivers on a flat-fee hire purchase scheme, journey insights could be used to predict the driver’s anticipated total mileage for the duration of their agreement.

“This would enable finance companies to improve customer experiences, for example, by increasing monthly premium rates in the event of predicted over-use, rather than collecting fees through final charges at the end of the hire purchase agreement.”

While it is easy to think of telematics as a development for tracking and improving the use of new cars, Barlow also believes that there are applications for used car finance companies.

Alongside the service history, MOT reports and HPI checks, telematics could provide insights into vehicle usage, for example the number and typical types of journey made – short trips or longer journeys – thereby building trust with the driver when purchasing a used vehicle on finance.

“All these solutions, however, rely on robust consent management, privacy and security, all of which are at the centre of wejo’s solutions,” Barlow says.

“wejo’s driver-first approach means that we are proactive and forward-thinking. We go considerably further than just ticking boxes to comply with policies, with built-in compliance and anonymisation frameworks to ensure that what’s private stays private.”

Shifting Perceptions

Of course, while businesses may see the appeal in being able to instantly gather more data on their customers, the customers themselves may have more ambivalent feelings about that technology.

Becher observes that there is a significant split between fleet management customers and consumers when it comes to telematics, with the technology seeing higher adoption rates among B2B customers.

“In the consumer space, there’s some reluctance,” he admits. “There are privacy fears; people don’t want to share data. But those consumers do want to use navigation services and traffic information.”

While these consumers might not see the benefit of telematics yet, Becher argues that this is due to the industry not making an appealing offer. Rather than being a flat-out rejection, however, the reluctance is more to do with the growing awareness consumers have that their data has value, and they want something in return for that value.

“Security and privacy are naturally at the forefront of drivers’ minds; drivers also don’t want to give their data away without there being a clear value exchange,” Barlow says.

“wejo facilitates trust building by enabling value-driven solutions that could, for example, enable greater financial flexibility or empower drivers and buyers with more knowledge in advance of purchasing a used vehicle.”

Indeed, that reluctance is already beginning to soften, with attitudes already changing over the 15 years since the technology was first introduced.

“Since the introduction and wide adoption of the smartphone, this attitude has changed to one of acceptance, due to the huge benefits to individuals that the technology has brought,” Harrhy notes.

Becher is quick to point out a number of immediately obvious benefits that telematics can offer to the end user, including a far more rapid response to problems with a vehicle.

“Possibly even before you recognise something is wrong with your vehicle, they can give you a replacement car or find a workshop to get it fixed,” he says.

The Telematic Age

What is clear when talking to people in the sector is that everyone – financiers, tech companies and consumers alike – will likely have to undergo a period of adjustment before the full benefits of telematics tools can be appreciated.

“I think the challenge even with the cost of telematics going down is that finance companies typically don’t see the broader business case for it,” Becher says. He also argues that while some businesses are taking advantage of standalone benefits such as insurance or car maintenance, what they fail to see is that these services can be combined, with multiple departments of a business spreading the costs and the benefits of the technology between them.

To thrive, businesses need to engage with the broader toolbox telematics can provide, rather than focusing on applications. Becher admits: “From our point of view, the challenge is finding or accepting the more generic business case, rather than just the short-term financial savings.”

Harrhy also argues that the main challenge confronting telematics is simply getting businesses to make the most of the huge amounts of data that telematics generates, not just for serving and marketing to customers, but for training staff, finding efficiencies, and reaching cost reduction, safety and sustainability targets.

Harrhy adds. “The ‘connected car’ can mean many things to many people, but for ALD Automotive it’s about creating new innovative products and services for customers. The group is spearheading the telematics movement that, today, is spreading from the light commercial vehicle segment to the passenger car segment, pushed by the integration of advanced connectivity in the hardware of new vehicles.”

To accelerate its progress, the company is partnering with Vinli, a specialist US-based technology company with expertise in cloud-based smart car data integration and processing to deliver apps into the connected car ecosystem.

Of course, if there is one challenge with which the car finance industry is intimately familiar, it is trying to adhere to a regulatory environment that can often be slow to keep up with the circumstances of the real world. And that is an issue that is only exacerbated when new technology enters the picture.

“Consent is one of the key challenges that finance companies will face when it comes to incorporating a telematics strategy into their business,” Barlow says.

“Consent is critical to building a value-driven and secure business model that utilises telematics. wejo ensures this through its Adept data-exchange platform, and we are constantly improving how we secure data; security by design is paramount when working with driver information.”

But, as Harrhy points out, change is coming. Once drivers understand the advantages that use of the app holds for them, as they have with their own smartphone apps, and when its use becomes second nature, the acceptance of telematics will become widespread.

“Drivers will quickly accept how the device can automatically record data such as vehicle location, vehicle performance and driver behaviour, and come to rely on the convenience of automatically recording business and private miles,” Harrhy says.

A New Kind of Ownership

One of the biggest sea changes in the car finance sector recently has been the gradual shift towards PCH and lease-style arrangements, away from outright car ownership. The shift is also one that has obvious synergies with telematics.

“It is entirely possible that pay-as-you-drive leasing models that require telematics and connected car data will be developed to tap into the technology and offer a new way of leasing a car,” Harrhy suggests.

The move away from ownership of vehicles is part of the shift towards a service model that can be seen in the UK and across the globe in the automotive arena and other traditional industries, and Barlow believes telematics technology will help the industry along this route.

“With the introduction of cloud technology, software as a service platform and 4G and 5G networks, it’s not too large a step to see ‘driving as a service’ in which PCH and lease-style arrangements support a wealth of choice for consumers,” Barlow says.

“We have already seen businesses like Zipcar inject some new thinking into the ownership model of vehicles; it may not replace consumers owning vehicles outright, but the market is shifting.”

One change that both telematics and lease-style arrangements could facilitate is a shift of responsibility for the maintenance and care of a car away from the driver to the finance company.

“As people don’t own cars anymore, the owner of the car has much more responsibility to keep it in good condition, manage accidents, manage service appointments, and the repair and maintenance of those vehicles,” says Becher.

“If the finance company owns large numbers of cars, you need telematics to manage those assets.”

Harrhy agrees, adding: “As consumers continue to move away from ownership to leasing, we may see a further shift to usership-based subscription models, where customers are prepared to pay for transport and mobility requirements where and when they need it.”

That is only one possibility in an exciting, but still unpredictable area of intersecting technology and finance.

Barlow is particularly excited about the opportunities for telematics and car finance firms to build partnerships that offer new and enhanced services.

“It’s a new field, and one that isn’t dominated by any major players yet,” Barlow says. “The first wave of car finance businesses to incorporate telematics into their strategy will have a unique opportunity to deliver a true differentiator in the marketplace and added value to their customers.”