JP Morgan’s latest patent application is for floor plan financing in the automobile sector. Its proposed system would see every car registered on a blockchain-powered registry where lenders, dealers, and carmakers could access important real-time data on a car. The patent-pending system proposed by JP Morgan would improve efficiency in the commercial lending process, and make everything in the industry much more transparent.
About Floor Plan Financing
This common short-term loan facility is offered to dealerships to help them purchase the automobiles that they sell to customers. The cars they purchase are used to secure the loan. This practice offers an incentive for dealers to sell their vehicles as fast as possible in order to reduce the interest they will accrue on the vehicles.
In recent years, issues of misreported sales have plagued the floor plan financing sector. In the current setup, an auditor has to visit the physical location of the dealer in order to verify that the inventory the bank is financing exists. It is a costly and time-consuming process. However, the JP Morgan system could help to bring an unprecedented level of efficiency to the industry.
How it would Work
Every car in the US comes with a vehicle identification number. This number is unique and unchangeable from the moment the car is manufactured to the moment it goes to the scrap yard. In the proposed system, JP Morgan will combine the VIN with smart contracts that are secured by the blockchain. With this system, it would be possible to receive real-time data about a car such as the GPS location, battery life, age, and other details.
Dealers, carmakers, and banks would use the JP Morgan system to create a shared platform. This would make it easier to track cars for the purposes of floor plan financing. According to JP Morgan, the proposed system would help to eliminate double flooring. This is when a dealer uses a car for collateral to acquire loans from more than one bank.
The bank has already conducted a pilot study used its patent-pending proposal. Thus far, the results have been satisfactory. If the patent is approved, the bank will finance the entire project internally. However, it will need the corporation of dealerships, lenders, and automakers to make the system work. It is currently holding discussions with automakers to have the technology incorporated into all new cars.
Besides floor plan financing, the system could be used to track car parts along the supply chain, thus helping to eliminate counterfeit parts. A recent report by IBM shows that over 62% of executives in the auto industry believe that blockchain is going to transform the auto industry. Most of them expect this transformation to occur in as soon as the next three years. The report notes that there is still a lot of work to be done. For instance, it notes that most participants in the auto industry are still working on the development of their blockchain-powered networks.
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