9 Sep 2016
Will driverless cars break the banks?
While robots driving cars may still seem like technology from a futuristic science-fiction film, soon enough driverless cars will be a part of everyday society, which could have a surprisingly dramatic impact on a diverse range of industries.
Most clearly, the transition to autonomous vehicles will transform how we think about transportation, disrupting business models across multiple industries. But this will also have a significant impact on traditional banking models, causing new business opportunities to open up and existing services to become obsolete.
" For Australian banks, the impact of driverless cars will result in a myriad of flow on consequences."
Craig Ridley, Managing Director, Accenture Financial Services
For generalist banks, the impact of driverless cars will reverberate across insurance, real estate, loans, capital works funding and small to medium-sized enterprises.
What’s more is this transition is happening faster than we may think. While current Tesla motor vehicles are semi-autonomous and still require a driver at the wheel, Telsa CEO Elon Musk expects the company will have fully autonomous vehicles ready for market by 2018.
Similarly, Google’s Self-Driving Car project has clocked up in excess of three million kilometres of real world testing.
Meanwhile, Singapore has announced two driverless vehicle trials and companies like BMW, Ford, General Motors and Toyota all indicated they expect to have commercially viable, fully autonomous vehicles on the road by the end of the decade.
Yet, while the future of driverless vehicles looks bright, the quest to achieve full vehicle automation will not come without its challenges.
HURDLES
Regulation is one major hurdle companies wishing to embark on this journey must first overcome.
Musk predicts Tesla’s driverless cars will be ready by 2018 but, given the lack of industry standards, regulatory approval may take a further three years.
Co-existence of current car models with semi-autonomous and fully-autonomous vehicles presents another challenge.
So just when will driverless vehicles rule the streets? According to Telstra chief scientist Hugh Bradlow, all vehicles on Australian roads will be driverless by 2030 as the cost of retrofitting existing cars is expected to fall below US$1,000.
In March this year, South Australia became the first jurisdiction in the country to allow on-road trials of driverless cars, following estimates the industry will be worth $A90 billion within 15 years.
Similarly in the private sector, Uber has confidently indicated they expect their full fleet to be driverless by 2030.The ride share company has also reportedly claimed its vehicles will soon become so ubiquitous and inexpensive car ownership will become completely obsolete.
IMPACT
While it is clear driverless vehicles have progressed rapidly over the past few years, the impact of this transition on the banking and financial services sector has been largely left out of the equation.
But consider:
• Insurance. Driverless cars are expected to be much safer on the road, dramatically reducing road fatalities as a result. Recent research by Swiss Re and HERE indicates driverless technologies could wipe $US20 billion off insurance premiums globally by 2020.
What’s more, companies like Volvo are already assuring their customers they will accept full liability for the actions of their autonomous vehicles when they officially go to market resulting in customers not requiring car insurance in the future.
• Real estate price equalisation. Driverless technologies will increase efficiencies for road usage, allowing people to utilise their travel time to work, sleep or relax. This could have a flow on effect to the real estate industry, should people no longer see the need to live closer to the CBD.
Inner-city housing prices could fall as a result; properly values in outer and rural suburbs could increase and banks’ existing mortgage books could be significantly impacted. Regardless of the exact influence of driverless cars on the real estate industry, some level of property value equalisation is likely to take place.
• Capital works funding. State governments across the country are already pouring funds into new public infrastructure projects in anticipation for the change, with major new roads and highways currently under construction across Sydney, Perth and Brisbane.
With the onset of driverless vehicles, it is likely this funding may dry up due to the efficient utilisation of existing roads.
• Car loans. Uber has already transformed consumer attitudes towards car ownership. According to various studies, car ownership is one of the most inefficient assets people own, as cars often sit unused for approximately 95 per cent of their existence, particularly within urban areas.
Driverless automation will likely increase the opportunity to access a fleet of shared on-demand driverless vehicles, provoking consumers to further question the validity of car ownership. This in turn will have a significant impact on conventional banking models and car loan schemes.
• Impact on small and medium-sized enterprises/commercial business. With the acceleration of the vehicle-as-a-service economy, petrol stations, car dealerships and motor mechanics will become increasingly redundant or at least vastly different in scale.
• Vehicles as shared assets. While Uber and Tesla may have fleets of driverless vehicles, schemes are likely to arise whereby people can invest in and have part ownership of driverless vehicles.
Like existing car sharing schemes such as Go Get, these automated vehicles may be used exclusively by investors or put to use on the road for others to hire, opening up a new market of shared assets that incur expenses and generate revenue.
To support operation, these assets will require some form of bank account and set of associated services in order to support operation.
To keep pace with the transition to driverless vehicles, tomorrow’s drivers will be looking to invest in car sharing schemes, subscribe to vehicle-as-a-service models and swap car ownership for an app allowing them to travel to and from their required destinations.
This in turn leaves many unanswered questions for the banking and financial services sector, which could be an industry ripe for disruption as its existing product and service mix are set to be shaken up.
Craig Ridley is a Managing Director within Accenture’s Financial Services practice
PHOTO CREDIT: Getty Images
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.