JPMorgan’s commercial auto financing entity has filed a patent application to explore the use of blockchain for tracking and managing automobile inventory and simplify its finances with car dealers.
Reported by Coindesk on 22nd November 2019, the patent application demonstrates the use of distributed ledger technology (DLT) in digitizing the floor plan and bring about the much-needed efficiency and simplicity to the complex lending process. The new version of floorplan lending involves a revolving credit facility that enables automobile dealers to borrow against retail inventory.
JPMorgan explores the use of blockchain
According to the patent application, every car in the United States has a unique identification number, and this informed can be stored and shared on blockchain, along with a range of other assisting applications geolocation sensors and telematic, and significantly improve the auditing processes for vehicle inventory on the dealership floor.
Kevin Point, who heads the research and development at Chase Auto, said that the car dealers use floorplan financing to purchase inventory. Some of them misreport sales or inflate the sales figures to the bank in an attempt to procure bigger loans, and this practice is currently plaguing the entire vehicle supply chain, he points out.
In the existing system, the auditor has to physically attend the dealership premises to ensure that the companies actually possess the vehicles they seek finance for. Besides being time-consuming, it is also a capital-intensive process as there is a lot of travel involved. However, Chase’s proposed DLT application offers an efficient and much smarter alternative.
Blockchain simplifies vehicle tracking process
Blockchain presents a unique ability to store and share the vehicle identification number among financial institutions, car dealers, manufacturers, and other entities involved. This significantly simplifies vehicle tracking process and association with floor plan contracts and critical attributes related to collateral audit like GPS location, Point explained.
Christine Moy, blockchain lead at JPMorgan, added that with this pilot test, JPMorgan is not solving its own problem but also the industry problem at large. The successful implementation of blockchain in this use case will serve as a foundation for many such applications for the automobile industry and the institutions financing them, Moy asserted.
She also mentioned that blockchain not only solves the problem of real-time risk management but also deals with those associated with double flooring. It is common malpractice among automobile dealerships where the dealer mortgages one vehicle as collateral for one floorplan to one bank. At the same time, he or she intentionally or unintentionally put the same vehicle as collateral for another floorplan to another bank.
Meanwhile, as the patent awaits approval, the American investment and financial services giant has already piloted this project and is confident of its patent application outcome. It plans to fund its entire inventory system and needs the cooperation of lenders, car dealers, and automobile manufacturers to make it a success.
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