According to JP Morgan, a blockchain can help keep track of the car inventory that finances for car dealers. It prevents dealers from promising the same cars for different loans.
The bank's wholesale car financing branch has filed a patent application detailing a distributed ledger-based version of “floorplan lending” which is a revolving line of credit that allows dealers to borrow against retail inventory.
Every car sold in the United States has a VIN or vehicle identification number. The bank believes these numbers can be attached to a blockchain accompanied by a range of other geolocation and telemark sensors. It can remove inept manual actions regarding auditing inventory on the dealership's floor.
According to the head of research and development at Chase Auto, Kevin Point, the process of floorplan lending includes doing a physical inspection or audit of all inventory on the dealership's lot from time to time.
This means someone can actually get to the dealership, identify the vehicles, and reconcile the inventory if the loan's outstanding on both the dealer's and the bank's accounting system.
JP Morgan, like other banks, are busy testing and building a blockchain system over the past few years and now looking for practical ways that will show their bottom line is improving.
In the United States, approximately 17 million new cars are sold each year and if you add used cars to the list, there are many millions more sitting on floorplan lines of credit.
Kevin Point believes tracking these cars on a distributed ledger will create savings in costs over a period of time. He also added this could be significant on an industry-wide basis.
The move is a slight deviation for the Quorum blockchain which is a private variation of Ethereum which is an open-source blockchain-based platform developed by JP Morgan.
Before now, Quorum was only used for brief financial operations issuing debt or linking payment networks of contributing banks. In comparison, the Chase Network of Assets involves verifying physical objects.
According to Christine Moy who is the blockchain lead at JP Morgan, this is a pilot that's being tested with real dealership partners but is not in production at this time.
Moy added that the Network of Assets could be applied more broadly saying that JP Morgan is talking to automakers about the blockchain system but is not at liberty to say any more at this time.
Not only is JP Morgan and Chase Auto looking to resolve their own problem, but it will benefit the vehicle and equipment industry, in general.
The Network of Assets is the foundation for this particular application but can be the foundation for many other applications and services for auto manufacturers, other banks, financial companies, and dealerships related to devices with telematic's connectivity.
This is like real-time risk management, the DLT system is designed to prevent double flooring. This is an act when either accidentally or fraudulently a dealership promises one vehicle as collateral for one floorplan contract to one bank but also promises the same collateral for a different floorplan contract with a different bank.
JP Morgan's concept is not exactly new, Tata Consultancy Services, which is part of the Indian multinational group, is looking at blockchain for floorplan financing.
JP Morgan's Quorum efforts are well-known with an active community around this technology. It offers the potential interoperability with a token payment system, such as the bank's JPMCoin, in the next round of blockchain.
Telematics, the auto industry, and its counter-parties, these identifiers are a great way to gain acceptance quickly and will drive effectiveness into different areas of finance.