In-car payment: status quo and challenges

Now we delve deeper into the world of in-car payment to shed light on the current status quo in the market and examine the key framework conditions that will shape the future of this exciting field of innovation.

The market for the InCar Payment innovation trend

The first part of my blog series dealt with the business insight with the support of the Connected Car Innovation Study. In-car payment is not only a quick-win factor for manufacturers and customers, but also an innovation and an innovation trend in connected mobility. The "Connected Car Innovation Study" by the "Center of Automotive Management (CAM)" has identified in-car payment as one of the top innovation trends in the field of connected services and financial services. For the first time, the study looks at financial services in detail and measures their innovative strength. The car manufacturer Mercedes-Benz stands out as a model manufacturer. Its service "Fuel/Charge&Pay" is considered the top innovation in the main type: "in-car payment". This result from the study underlines the strategic relevance of the introduction and optimization of such payment systems for car manufacturers. It is therefore particularly interesting to examine the current status and application of these systems at various OEMs. There are differences in the approach and integration of these systems. Put simply, there are two basic in-car payment approaches:

1. In-car payment using external systems such as Apple CarPlay and Android Auto: With the help of these systems, the smartphone is integrated into the infotainment system, offering the necessary apps, such as Ryd for in-car transactions.
2. InCar payment directly from the infotainment system: Here, the transaction and payment are carried out via the manufacturer's system.

The following use cases are currently realized on the European market with InCar-Payment:

• Refuel
• Parking
• Purchase of digital services and feature-on-demand

Challenges and enablement

The combination of connected mobility and financial services adds a whole new dimension to the digital ecosystem in the vehicle. In addition to refuelling, parking and function-on-demand bookings, other use cases such as paying tolls or vignettes while driving can be implemented as "Pay & Drive" for digital and convenient travel. Furthermore, workshop visits or inspections can be paid for directly via the infotainment system. However, OEMs face various demanding challenges when it comes to implementing in-car payment. 

1) Legal framework

InCar Payment is subject to the strict requirements of the PSD2 (Payment Service Directive 2) payment directive. This European directive was developed to promote competition, security and innovation in payment transactions within the European Union. PSD2 obliges banks and third-party providers to grant access to their customers' account data, provided the customer expressly agrees to this. This enables financial technology companies and other payment service providers to make payments on behalf of customers and retrieve account information. At the same time, the directive extends the scope of original payment services through Application Programming Interfaces (APIs) to connect third-party providers securely and consistently with banks, enabling secure, encrypted communication between them. 

2) Security

Strong Customer Authentication (SCA) is an important regulatory requirement in the financial services sector, primarily aimed at increasing the security of online payments. Essentially, SCA requires an additional level of authentication when customers make online payments. This means that in addition to the traditional username and password, an additional level of security, such as a one-time password or biometric data, is required to confirm the customer's identity. SCA is based on the following factors Knowledge (knows), possession (owns) and inherence (is).

3) Technical implementation

The technical implementation must not only ensure a smooth process from the customer's perspective, but also guarantee scalability, security and flexibility in the processes and architecture. Depending on the use case and the selected payment method, the system must trigger specific processes and transactions in the backend and in partner systems. At the same time, these processes must be real-time capable in order to avoid long waiting times in the car. It is therefore important to address the following challenges before the technical implementation: 

• Security: The security of in-car payment systems is paramount. The integration of payment functions requires strong encryption, authentication and protection against cyber attacks in order to safeguard customers' financial information.
• Conformity: Payment solutions must comply with strict regulatory requirements, including the EU Payment Services Directive PSD2. Compliance with these regulations is necessary to minimize legal risks.
• Integration and interoperability: The smooth integration of InCar Payment into existing vehicle technology and seamless interaction with various service providers, such as petrol stations, parking garages and retailers, are technical challenges that need to be overcome. This requires standardized interfaces and protocols, such as APIs.
• Hardware and software integration: The implementation of native in-car payment solutions requires cooperation between car manufacturers and payment service providers.IT landscape: In order to ensure the scalability and flexibility of the processes, the IT infrastructure must be specifically coordinated. A choice can be made between cloud solutions or on-premise solutions depending on the requirements.

In our "Proposel" chapter you will find a simplified technical example to illustrate these concepts. 

4) Customer experience

The customer experience is crucial to the success of InCar-Payment. A positive customer experience with InCar-Payment starts with the user-friendliness and reliability of the technology. Customers expect payment processes to be fast, secure and intuitive. Another key aspect is personalization. In-car payment solutions should be able to recognize drivers' preferences and habits and provide personalized recommendations for payment options and offers. Companies that rely on user-friendly, personalized and secure in-car payment solutions can gain a competitive edge in this emerging field and build long-term customer relationships. 

5) Portfolio of products and services

In the area of in-car payment, a wide range of products and services is essential in order to meet the dynamic needs of users. The use cases should not be limited to refueling or parking. Collaboration with new retailers and service providers is particularly important in order to expand and enrich the digital ecosystem in the vehicle.

Proposel

Based on the challenges described and the example of Fuel&Pay from Mercedes-Benz, a possible visualization can be derived as follows. There are three main phases for involving SCA in the payment process:

1. Payment initiation and customer consensus: The customer requests the use of a payment initiation service provider (PISP). The merchant accepts the request and sends the payment details to the customer. The customer confirms to the merchant to initiate the payment via the PISP. All relevant data is transferred from the merchant to the PISP. The PISP authenticates the transaction with the customer's bank. The bank confirms and forwards the payment to the PISP.
2. Authentication and authorization: The customer is then redirected to the bank's website. The customer authenticates themselves with their bank using Strong Customer Authentication (SCA). The customer then selects the payment details from which the payment is to be made.
3. Payment execution: After customer confirmation, the PISP completes the purchase process. The PISP sends a request to the bank via an application programming interface (API) to initiate a transfer. A token, for example, is sent as a reference. As soon as the bank has validated the request from the PISP and the token, it initiates the transfer from the customer's account to the PISP's account. The PISP then credits the merchant's bank account with the desired amount.

This illustration is intended to simplify the content and show the players in the process. 

Since 2023, car manufacturer Mercedes-Benz has been using a fingerprint sensor in the vehicle to authenticate the customer directly in the vehicle. Customers use the MBUX infotainment system to authorize payment for fuel by fingerprint. In addition, digital services or feature-on-demand products can be subscribed to "simply" at the touch of a finger via the infotainment system. Using Visa's delegated authentication and cloud token framework technology, sensitive payment information is also encrypted and protected. 

The future of in-car payment and connected cars

The integration of in-car payment and connected car technology is revolutionizing the way we interact with vehicles. This innovative approach links financial services with mobility, bringing significant benefits to both consumers and businesses and opening up exciting new possibilities in the digital vehicle ecosystem. We at Connected Mobility are convinced that this development will have a lasting impact on mobility and make the driving experience much more comfortable and fascinating. 

1) PSD2 | Deutsche Bundesbank

2) Strong Customer Authentication (SCA) (stripe.com)

3) Connected Car Innovation (CCI) Study 2021 - CAM (auto-institut.de)

4) Mercedes me Fuel & Pay (mercedes-benz.com)

5) Visa Token Service | Visa

6) https://www.adyen.com/knowledge-hub/delegated-authentication