JPMorgan to finance a ledger-based inventory system to remove information asymmetry in the automobile industry

Quick Take

  • JPMorgan has filed a patent application that describes a distributed ledger-based version of floorplan financing to improve efficiency in the lending process
  • The proposed project plans to register every car onto a blockchain registry so that all lenders, dealers, and automakers can access important real-time information such as GPS location
  • Blockchain can be a “disruptive force” in the automotive industry within the next three years, an IBM report shows

JPMorgan's auto financing arm revealed its plan to finance the creation of a blockchain-based automobile inventory system to digitize floor plan financing and bring efficiency to the commercial lending process. The project came out of the company’s patent-pending distributed ledger-based floorplanning methods.

Floor plan financing is commonly used by car dealerships to purchase inventory, and the unethical practice of misreporting sales to the bank has been a major challenge plaguing the automotive supply chain. Currently, an auditor has to physically travel through a dealer’s lot to gather information on vehicles and make sure that the inventory being financed is actually there. It is a capital-intensive and time-consuming business, and Chase’s new DLT application tries to offer a more efficient alternative.

In the U.S., every car is assigned a vehicle identification number (VIN) that stays with the car from release to scrapping. JPMorgan sees an opportunity to combine the use of VIN with smart contracts and anchor it to a blockchain, which would allow for real-time identification of the state of the vehicle including its geolocation, age, and battery life. 

“There is the ability to register this unique identifier onto a shared blockchain registry shared by auto manufacturers, finance banks and companies, and dealerships to enable easier tracking and association with floor plan contracts and key attributes related to collateral audit like GPS location,” JPMorgan told The Block.

The proposed DLT also aims to prevent double flooring, which is when a dealership pledges one vehicle as collateral for floor plan contracts to more than one bank. 

JPMorgan has completed a pilot project using the patent-pending technology and is confident about the overall prospect of the project, according to Christine Moy, JPMorgan’s blockchain lead.

The bank plans to finance 100% of the inventory system, but it also needs a number of counterparts—lenders, dealers, and automakers—to agree on having a ledger within their environment. The bank is currently having conversations with automobile manufacturers, she said, to negotiate making this technology a built-in capacity for all new vehicles.

JPMorgan identifies “a broad interest in the ecosystem in testing the use of blockchain to track auto or equipment parts as part of supply chain tracking and finance.” Indeed, a report by IBM shows that 62% of its surveyed automotive executives claim that blockchain will be a “disruptive force” in the automotive industry within three years. But the industry is still in an early stage of developing blockchain networks, the report says, and most suppliers and manufacturers are only considering or experimenting with the technology.  

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