FINANCE, SECURITIZATION, & SMART CONTRACTS - Business White Paper - MOBI
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Building the New Economy of Movement FINANCE, SECURITIZATION, & SMART CONTRACTS Business White Paper June 2021 MOBI FSSC0001/WP/2021 Version 1.0
INTRODUCTION
The Mobility Open Blockchain Initiative is a global, multi-
Authors
Howard Altarescu, Orrick
Chris Ballinger, MOBI
Joe Bannon, KAR Global
Michelle Corson, On the Road Lending
David Eddy, D.E. Consulting
Phil Masi, BMW Bank
S. Chris Min, Orrick
Daniela Novaro, Reply
Eric Pilat, Altaventure
Andrew Smith, TQ Tezos
stakeholder project working to co-design standards based Josh Fodale, Ford Credit Tram Vo, MOBI
on distributed ledger technology for connected mobility Griffin Haskins, MOBI Marguerite Watanabe, MOBI
Tu Le, USAA
ecosystems. The project engages stakeholders across the
transportation value chain, including vehicle
FSSC Working Group Co-Chairs
manufacturers, technology solution providers,
Howard Altarescu, Orrick
governmental, and non-governmental entities. This report Anthony Salamone, RouteOne
is based on numerous discussions, workshops, and
research. Opinions expressed herein do not necessarily FSSC Working Group Team Members
reflect the views of individual members or the companies Toby Box, Quant Network S. Chris Min, Orrick
with which they are affiliated. Joe Bannon, KAR Global Charlie Moore, Global Debt Registry
Anne-Sophie Cartray, ConsenSys Daniela Novaro, Reply
Michelle Corson, On the Road Lending Eric Pilat, Altaventure
Launched in March 2020, the MOBI Finance, Securitization, David Eddy, D.E. Consulting Dan Simerman, IOTA
and Smart Contracts (FSSC) Working Group (WG) strives to Josh Fodale, Ford Credit Andrew Smith, TQ Tezos
Don Ho, Quantstamp Jamie Solomon, Accenture
improve accuracy and transparency, create operational Tu Le, USAA David Wattebled, Quant Network
efficiencies, minimize fraud risks, and save on costs and Phil Masi, BMW Bank
time in the execution of financings, including
securitizations, for all entities in the financing lifecycle. MOBI Team
Chris Ballinger, Co-director + Founder Griffin Haskins, Fellow
Tram Vo, Co-director + Founder Kelly Clark, Communications Manager
Sincere thanks are extended to those who contributed their Marguerite Watanabe, Working Group Lead Grace Pulliam, Communications Associate
unique insights to this report. Robin Piling, Technical Lead
01 Executive Summary
03 The FSSC Standard
TABLE OF
07 FSSC Use Cases
Know Your Customer (KYC) Requirements
CONTENTS
Dealer Floorplan Financing
Dealer Floorplan Auditing
A Blockchain Foundation for Securitization
Verifiable Credentials in the Loan Application Process
Digitization of Manual Processes with Smart Contracts
Loan Servicing
Issuance and Investor Impact Reporting for Green Bonds
V2X and Securitization
Non Risk-Based Credit
Fractional Ownership of Mobility Assets
25 Conclusion
26 Bibliography
The vehicle finance
Executive
Most of these retail and commercial finance contracts are
ecosystem has many
components that can be
pooled, packaged into Asset Backed Securities (ABS), and
characterized as trust financed by third-party investors in a process called
services. Blockchain has the securitization. Blockchain has the potential to reduce risks and
Summary
potential to radically improve, costs associated with the financing of vehicle loans, including
or even fully replace, many of the securitization process, improve visibility of asset values and
these trust services. to replace the trust services currently in place.
Blockchain and related ledger technologies have the potential
to make the trust service function significantly more efficient,
transforming the role of financial intermediaries and delivering
value to downstream businesses and consumers. Many processes
within the vehicle and mobility industry will benefit from the
standardization and digital efficiencies that blockchain enables.
Our financial system - including banking, auditing, MOBI’s FSSC Working Group The Mobility Open Blockchain Initiative’s Finance Securitization
was created to accelerate the
impact of blockchain and
and Smart Contract Working Group (FSSC) was created to
accounting, and many other components that can be
related technologies on many accelerate the adoption and value creation from blockchain
characterized as “trust services” - underlies markets for areas in the vehicle finance and related technologies, including smart contracts in the
goods and makes all non-barter trade possible. The ecosystem. The FSSC mobility ecosystem as applied to consumer and dealer floorplan
Working Group considered lending and financing.
financial system is a network of trust services that both B2B and B2C use cases
in its investigation.
together permit markets to function efficiently. These This white paper will overview a variety of use cases that were
considered by the FSSC WG. The Working Group considered
trust services are quite expensive - transaction fees both B2B (business-to-business) and B2C (business-to-
alone are estimated to account for almost 1% of global consumer) use cases, and each section of this paper focuses on
1
economic activity. B2B and B2C use cases separately.
1. “The Social and Private Costs of Retail Payment Instruments: A European Perspective”,
In the US, almost 90% of new car purchases and more European Central Bank Ecosystem, September 2012,
2 “https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp137.pdf”
than 50% of used car purchases are financed. Vehicles 2. “Automotive Industry Insights Finance Market Report Q4 2020”, Experian, March 2021,
on dealer lots are likewise financed. https://www.experian.com/content/dam/marketing/na/automotive/quarterly-
webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-
market.pdf
© 2021 MOBI — FSSC Business White Paper 2
THE FSSC STANDARDS
Modern vehicles and trucks are increasingly connected, intelligent, interoperability. Truly exciting advances become possible when we
endowed with large amounts of computing power, and have a wide are able to seamlessly and easily share data with each other, with
range of sensors that can capture data about the vehicle and its the necessary shared functionality assured. These abilities are
surroundings. Connected vehicles are beginning to dominate global called data interoperability and functional interoperability; both are
roadways, and the mobility industry has quickly focused on how difficult to achieve at scale. Within the vehicle finance ecosystem,
newly available data from those vehicles can be used to power there is very little interoperability between the siloed data systems
exciting new applications. However, there are some major barriers of the participants. Lenders, rating agencies, servicers, OEMs,
to fully actualizing the value of these developments. Most notably, vehicle dealers, and other organizations operate almost entirely with
the organizations and companies that would utilize vehicle data a siloed model, and most still rely heavily on trusted third parties to
operate entirely within data silos, and integrating their closed mediate and manage multiparty processes.
systems with external partners or data sources necessitates
building costly integrations every time. As a result, any The staying power of trusted third parties is no accident - financings
coordination or data sharing occurs bilaterally, but such a one-to- of all kinds are subject to regulation, scrutiny, and potential liability,
one approach does not lend itself to scalability, transparency, often necessitating the use of trust services. For example, in vehicle
openness, or economic efficiency. loan securitizations, a third party is often required to carry out
various functions, including servicing and trustee responsibilities
Executing multi-party applications requires that each party is able such as receiving funds and distributing payments to various parties
to communicate and coordinate actions. In other words, multi-party according to a waterfall structure. Such a third party is providing a
systems require that each participant’s system have a degree of trust service.
3 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 4
The FSSC Standards
Blockchains provide a trust Blockchain, ultimately, provides a trust layer, in that it provides a value is tied to the level of adoption and the number of
layer, where the trust arises
from the immutability and
secure avenue for stakeholders to authenticate each other’s stakeholders. The diversity of features and range of feasible use
transparency of data on the identity and to immutably record their secured information and cases of a distributed ledger system are thus married to its
chain, as well as the shared to securely expose such information to other permissioned network effects. Such network effects grow as adoption grows
governance of distributed stakeholders. For example, instead of using a costly third party, over time.
ledger systems.
The core services and logical
a smart contract can disburse funds according to a pre-defined
The FSSC Standard’s main components - core services and
and agreed upon waterfall structure. All parties can trust in the
schemas prescribed by the
FSSC Standard are key for
logical schemas - provide the structures required for creating
accuracy of the payments, as everything is transparent on chain.
Ultimately, the ability to trust arises from the immutability and
creating and scaling multi- and scaling multi-party applications, allowing communication
transparency of data on the chain and the shared governance party applications and and collaboration between the siloed ecosystems of each
allowing communication and vehicle finance stakeholder. Such structures lay the foundation
collaboration between the
of distributed ledger systems. Distributed ledgers, with
for robust, secure data sharing and value transacting at scale.
standards enabling necessary data and functional
siloed ecosystems of each
vehicle finance stakeholder.
The FSSC Standard carefully and effectively distinguishes
interoperability, provide a necessary, foundational layer for
between what sorts of data and functionality must be standard
creating multi-party applications on top. However, breaking
across all implementations, versus what considerations are best
down these silos requires more than just technology - it requires
left up to the engineers. Standards are much like mobility
community buy-in and coordination.
ecosystems and distributed ledgers, in that they all rely on
The FSSC Standard Interoperability can only be achieved when there are common network effects to provide value. The FSSC Standard enables a
prescribes core services and
logical schemas for data
standards for core infrastructure - identity, data, and functions. compelling array of use cases, and those use cases will grow in
sharing between vehicle The FSSC Standard prescribes core services and logical number, complexity, and value as adoption grows over time.
finance stakeholders with the schemas for the sharing of data between vehicle finance
Distributed ledger technology
goal of achieving functional stakeholders. In other words, the FSSC Standard is a
provides technological trust
Given the widespread use of various types of trust structures
and data interoperability. foundational step towards achieving data interoperability and
structures that can replace
within vehicle finance and securitizations, distributed ledger
functional interoperability for multi-party financial applications
many third-party technology has enormous potential to quickly disrupt many
in mobility ecosystems. This allows for the proliferation and intermediaries or processes traditional processes. Distributed ledger technology provides
that require onerous manual technological trust structures that can replace many third-party
verification. These trust
growth of multi-party solutions, enabled by the frictionless flow
intermediaries or processes requiring onerous manual
of data between these silos.
structures enable a diverse
array of benefits to many
verification. Therefore, the trust layer that is provided by
Multi-party applications, as the name implies, involve multiple
varied use cases, which are distributed ledger technology can quickly provide value within a
parties interacting in a shared system to achieve a mutually
explored in detail for the wide range of use cases within vehicle finance and
beneficial outcome. Therefore, it necessarily follows that remainder of this paper. securitization. The remainder of this document provides an
systems supporting multi-party applications require an existing overview of is focused on overviewing these use cases and their
set of parties to use those systems. In other words, multi-party benefits.
systems rely on network effects to succeed, and indeed, their
5 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 6
FSSC
Know-Your-Customer (KYC) Requirements
In both the US and the EU, In the U.S., the adoption of the Patriot Act made it incumbent
financial institutions must
USE CASES
comply with KYC/AML
upon banks and other lenders, including vehicle dealers, to verify
regulations in order to avoid the identity of borrowers (their customers) to avoid facilitating
facilitating money laundering, money laundering, terrorism financing, or other criminal activity.
terrorism financing, or other The KYC requirement applies to all loans, no matter the size.
criminal activity. Financial institutions must comply with two key components of Title
III of the Patriot Act – the Customer Identification Program (CIP)
3
and Customer Due Diligence (CDD). In the European Union, anti-
money laundering requirements are included in the 4th Anti-Money
Laundering Directive (4AMLD), and the specific provisions on
electronic identification and trust services are covered4in
Regulation (EU) No 910/2014 (the "eIDAS Regulation").
Each bank has the discretion Each bank has the discretion to use whatever process it chooses
to use whatever process it
chooses to verify the identity
to verify the identity of a customer and may require different
of a customer. Financial information. At a minimum, an individual customer is ordinarily
institutions are required to asked to provide government-issued identification, such as a
report if they have reason to passport or driver’s license (or both). If the customer is a business,
suspect criminal activity. the customer may be asked for filed formation documents and/or
These processes are Siloed business lines within
expensive for banks and
references. In both cases, financial institutions will often review Many banks are running on computing systems with inefficient
cause friction with information from a credit reporting agency. There is no standard, and across institutions and
jurisdictions lead to redundant
data capture methods. Siloed business lines within and across
customers. uniform approach for establishing a customer’s identity.
processes and a poor user institutions and jurisdictions lead to redundant processes and
experience. The inability of when the customer is required to repeatedly provide the same
Financial institutions are required to report if they have reason to
banks to reference a common information, a poor user experience. The inability of banks to
suspect potential criminal activity, including reporting on activities
dataset reduces the reference a common dataset reduces the efficiency of the
that look high risk, such as frequent wires and international
efficiency of the diligence
process.
diligence process, creates ambiguity, and may result in
transactions. The process is expensive for banks and causes
inaccurate conclusions. Reducing or eliminating manual
friction with customers.
interpretation allows for an enhanced data-driven decision-
3. “KYC vs. CIP vs. CDD | Know Your Customer Rules and Guidelines”, AdvisoryHQ, accessed
making process. The ability to augment a customer profile that
April 2021, https://www.advisoryhq.com/articles/kyc-vs-cip-vs-cdd-know-your-customer-
is accessible to a broad network of financial institutions will
rules-and-guidelines/.
reduce risk, can enhance the customer experience, and bring
4. Charles Krier, Katharina Wagener, “eIDAS and AMLD5: A perfect match?”, PayTechLaw,
September 2020, https://paytechlaw.com/en/eidas-and-amld5-a-perfect-match/. down compliance costs.
7 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 8
FSSC Use Cases
The objective of this use Most financial institutions use at least some information from Lenders often pool loans into institutions owned and operated by original equipment
case is to reduce costs that ABS transactions. A vehicle
financial institutions incur in ABS is similar to a mortgage-
third-party service providers, although the data and information manufacturers or “OEMs”), and specialized lenders in the vehicle
complying with KYC services vary. Enabling systems integration with third-party
backed security, except that wholesale industry, including those owned by wholesale auction
regulations by building a service providers would reduce repetitive information requests
the underlying assets that companies that lend money to dealers purchasing vehicles at
standardized approach to a of the customer and would allow for consistent use of form the collateral are a pool such auctions.
global digital customer independently verified diligence. of loans secured by vehicles
identification system. purchased and owned by car
dealers.
These lenders often pool these loans into ABS transactions. An
Customers naturally appreciate simple, fast, and seamless ABS is an investment security—a bond or note—which is backed
journeys. As new relationships are increasingly remote, by a pool of loans, in this case floorplan loans secured by new
especially in light of the Covid-19 pandemic, an efficient KYC and used cars. A vehicle ABS is similar to a mortgage-backed
process should contribute to an improved customer experience security, except that the underlying assets that form the
in the customer journey for the purchase of a vehicle. collateral are not residential mortgage loans secured by
residential properties, but rather, in the dealer floorplan
The objective of this use case is to reduce costs that financial securitizations, a pool of loans secured by vehicles purchased
institutions incur in complying with KYC regulations by building a and owned by new and used car dealers.
standardized approach to a global digital customer
identification system. A digital customer ID that is compatible Blockchains and smart Blockchain and smart contracts can enable a dealer (a
contracts can enable a dealer
to better monitor and manage
with blockchain technology (and, of course, consistent with borrower) to better monitor and manage multiple maturities of
applicable privacy laws and regulations in relevant jurisdictions)
multiple maturities of the the loans financing its vehicles. For dealers, a common mistake
can be a catalyst to virtually connect silos of KYC diligence
loans financing its vehicles. is a failure to track loan maturities and to realize that many of
systems between institutions across the world. Alerting dealers to upcoming these loans mature at the same time – although each vehicle
loan maturities allows the could have a vastly different sales cycle. Smart contracts can be
dealer to better coordinate a
Dealer Floorplan Financing floorplan financing
management strategy.
created to alert dealers to upcoming loan maturities and to
better enable the dealer to coordinate a floorplan financing
management strategy with its vehicle sales strategy and
Dealer floorplan financing is a Dealer floorplan financing, among other things, is a form of expectations.
form of inventory financing for
a dealer of vehicles and trucks
inventory financing for a dealer of vehicles and trucks, in which
where each loan is secured by each loan, or advance against a floorplan credit facility (also
a specific vehicle or truck. known as an “asset-backed loan”) is secured by a specific piece
of collateral, i.e., a specific vehicle or truck.
Lenders in the dealer floorplan finance space include
commercial banks, captive finance companies (financial
9 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 10FSSC Use Cases
Dealer Floorplan Auditing process. Using distributed ledger technology to replicate the
audit process, and the ability to reconstruct the source
The primary purpose of a The primary purpose of a floorplan audit is to reconcile dealer
information for audits on demand should increase confidence in
floorplan audit is to reconcile inventory used as collateral for the floor plan loan to reduce the
the validity of the audit system.
dealer inventory used as
collateral for the floor plan
A Blockchain Foundation for Securitization
lender's risk. The main objective is to capture the VIN number
loan to reduce the lender’s and to confirm the presence of the vehicle at the dealership.
risk. The main objective is to Gathering this information and accurately reporting it in a
capture the VIN number and trustworthy fashion represents a significant operating cost.
Vehicle loan securitizations
to confirm the presence of
Vehicle loan securitizations provide a crucial source of funding
Floorplan audits are intended to identify fraud, intentional or provide a crucial source of
the vehicle at the dealership. funding and liquidity for the
and liquidity to the vehicle industry. Securitization transactions,
Gathering this information vehicle industry, but they are
otherwise, by dealers, including double-flooring (when a dealer
however, can be complex and costly, involving many transaction
accurately represents a takes out a line of credit with two lenders on the same set of
complex and costly, involving parties and a vast amount of data that must be obtained,
significant operating cost. vehicles); and a dealer has sold vehicles out of trust (SOT)
many transaction parties and secured, and reviewed multiple times by various intermediaries
(where a dealer fails to repay an inventory advance and sells
a vast amount of data. The in each step of the financing process.
the underlying vehicles), among others. FSSC WG has identified and
compiled a list of data
Distributed ledger technology elements commonly required The FSSC WG has identified and compiled a list of data
can be used to eliminate the
Audit solutions can be evaluated on a spectrum that ranges
in the securitization of loans. elements commonly required in connection with the origination
cost of a dealer floorplan
from simply taking a dealer at their word all the way to a
The goal is to improve the and securitization of loans. The goal is to improve the efficiency
audit by capturing data perfectly reliable connected car future with autonomous
efficiency of various multi- of various multiparty processes involved in securitization by
elements like the VIN, GPS, vehicles reporting their location and condition in real-time. party processes involved in
securitization.
creating a common understanding by lenders (as securitizers),
and time of day. By leveraging Existing solutions rely heavily on Inventory Control Personnel
the rating agencies, and investors of the data elements required
the availability of verifiable (ICP). ICPs are either internal employees or those from a third-
data, the onerous manual
for these processes, and the homogenization of information
verification can be avoided
party company contracted by the lender to confirm the relevant
required from such lenders and considered by rating agencies
entirely. details of the financed inventory.
and investors. Also, the use of common data elements in loan
originations can further standardize related securitizations,
Distributed ledger technology can be used to eliminate the cost
improving transparency into the underlying loans and liquidity in
of the ICPs with a technical solution that replicates the trust
the markets. Blockchain technology can provide such data in a
level in the existing system while also providing a pathway for
trustworthy, secure and immutable format, that could result in
more efficient collection of data in the future. A high degree of
efficiencies and cost-savings for all parties involved.
trust can be maintained by capturing primary data elements like
VIN, GPS, time of day, etc. In addition, metadata can be used
The creation of a common and trustworthy reference
to capture second order trust indicators like time between
architecture allowing multiple stakeholders to expose their data
captures, physical movement, distance covered, etc. Lenders, as
to shared, multiparty applications, may also provide the
well as securitization investors, must be able to trust the audit
opportunity for smaller lenders to sell loans into warehouse
11 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 12FSSC Use Cases
The creation of a common facilities. Then, such lenders would be able to utilize It is essential that the rating Smart contracts can also be used to efficiently bundle loans
and trustworthy reference agencies, investors, and other
architecture allowing multiple participants in the
securitizations to finance the loans originated, thus providing with certain characteristics together for securitization purposes.
stakeholders to expose their the benefits of rated securitization financings to lenders for
securitization process have It is essential that the rating agencies, investors, and other
data to shared, multi-party whom such capital market efficiencies may not be otherwise
confidence in information participants in the securitization process have confidence in the
applications, can ultimately available. made available by the information made available by the network. Accordingly, it is
allow for the reduction or network. Industry wide also critical that the data attestations be placed on blockchain
elimination of the need for consensus on how these
multiple verifications of data processes are to be carried
Elimination or reduction of the need for multiple verifications of by a trusted third party or that the accuracy of the data
or repetitive due diligence by data by third parties and related due diligence costs may also
out, and what verification notarized on blockchain be verified by a trusted third party.
third parties. be possible by putting data on a trusted blockchain. Cost
looks like, are critical for Alternatively, the process by which the information is verified
savings from a streamlined securitization process through the trustability. and notarized on blockchain can be automated through smart
use of a single trusted blockchain database would lower the contracts. Or, the lenders can require the source of information
cost of entry for many smaller players in the vehicle to be notarized on blockchain which allows for the digital
securitization industry, giving them access to a valuable funding authentication of the information, which could significantly
source. reduce the reliance on third-party verification. In any case, it
may prove useful to have industry-wide consensus on one or
A single source of truth can Reductions in transaction costs mean that it can be cost- more of these processes, including on the parties that would be
help eliminate the need for
paper-intensive processes
effective to enter the securitization market with a smaller deal trusted to verify the accuracy of the information on blockchain
and additional loan-level size, which can further lower the hurdle for smaller lenders. A derived from the database.
diligence at the time of single source of trusted data may diminish, if not eliminate, the
securitization, which
diminishes opportunities for
fraud or errors.
need to diligence the accuracy of information mined from loan
applications, loan agreements, related contracts, and other Verifiable Credentials in the Loan Application Process
documents. For example, tracking the underlying vehicles and
their associated loans and their ownership is often a paper- A verifiable credential is a set A verifiable credential is a set of tamper-evident claims and
of tamper-evident claims and
metadata that
intensive process, requiring a time-consuming process of metadata that cryptographically prove who issued it. By storing
scanning pages, establishing and securing “authoritative”
cryptographically prove who that cryptographic proof on blockchain, it can be easily
copies, and multiple manual verifications and diligence reviews.
issued it. They are the accessed for use in various applications and processes.
Such a process, which is typically conducted manually, is also electronic equivalent of Verifiable credentials are the electronic equivalent of the
prone to error, and may present opportunities for fraud. Making physical credentials we use physical credentials that we all use today, such as plastic cards,
today, like drivers licenses.
They can be used in many
relevant data and other information accessible through a single passports, driver’s licenses, paper credentials, and awards,
trusted blockchain could help eliminate the need for additional
processes within the credit among others. Verifiable credentials can be utilized in many
loan level diligence at the time of securitization and diminish
application lifecycle. components of the vehicle credit application process. Some
opportunities for fraud or errors. examples are provided below.
13 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 14FSSC Use Cases
Verifiable credentials can
assist with data authenticity
Verifiable credentials can assist with data authenticity and
verifications. A standard vehicle credit application contains
Digitization of Manual Processes with Smart Contracts
and verifications. A standard Smart contracts can be used
vehicle credit application several data elements provided directly by the customer. Some
to automatically implement
Smart contracts may be used to automatically implement,
contains many data elements of these data elements, such as annual income amounts, are
conventional contractual
without the need for third-party intervention, the conventional
provided directly by the key pieces of information used in the credit decision process.
arrangements in a contractual arrangements in a securitization and the underlying
customer. Verifiable Today, a variety of often manual processes exist to verify an
securitization and the
credentials can eliminate the
financing (i.e., the servicer obligations to collect borrower
manual verification
applicant’s income. For example, lenders may need to reach out
underlying financing, as well payments and remit such payments to a securitization account,
processes that are and contact the applicant’s employer, in order to confirm their
as programmatically execute pursue borrowers to collect delinquent payments or to pursue
traditionally employed for employment status. Lenders may also require copies of pay many processes involved
within the securitization or
recoveries in defaulted loans, and allocate payments to
those data elements. stubs or previous tax returns. All of these processes are time
loan. investors pursuant to waterfall provisions in the relevant
consuming. Verifiable credentials carried by an applicant could agreements.
alleviate many of these pain points. For example, a verifiable
credential signed by an employer or bank could automatically One prime example of where One prime example of an area in which smart contracts can
and authoritatively confirm an applicant’s employment status smart contracts can
streamline traditional
streamline traditional vehicle finance and securitization is
processes is executing the
and income level. Such a confirmation could be carried out in waterfall distributions and reporting. An immutable and time-
mere seconds as the credential is verified against a registry via
waterfall distributions and stamped chronology of borrower payments, and a verified smart
an Application programming interface (API) call.
reporting. Smart contracts contract that provides for the distribution of such payments
Verifiable credentials can can execute the distribution based on the waterfall, could diminish if not eliminate the need
also help protect customer
Verifiable credentials can also be leveraged to help protect
of interest and principal
payments to the investors
for investors to do monthly payment reconciliations. Smart
customer privacy. Lenders often acquire and store copies of
privacy by reducing or and charge the fees to contracts can securely execute the distribution of interest and
eliminating the lender’s need an applicant’s personal documents, such as driver’s licenses or
transaction parties pursuant principal payments to investors and fees to transaction parties
to see and keep copies of other government IDs. Verifiable credentials can reduce or
to the waterfall, eliminating
personal documents. This
pursuant to the waterfall, without manual allocations, reporting,
helps reduce oversharing of
remove the lender’s need to see and keep such copies, as the
the need for a third party to and wire transfers. Blockchain technology allows for seamless,
personally identifiable
data is passed digitally and its authenticity can be confirmed by
provide such a trust service. trusted, and audited sharing of data among all of the
information during the credit
the cryptography. In addition, verifiable credentials can
participants in the transaction while being assured that the
application process. potentially leverage cryptographic techniques, such as zero-
knowledge proofs, to mask the types of information given to a
potential for fraud or errors has been diminished, if not
eliminated.
lender. For example, a credential could prove that an applicant
makes more than $100,000 per year, without giving away their
A typical vehicle loan ABS transaction produces investor reports
exact income or it can prove that such an applicant graduated
on a monthly basis with payment information and loan
with a four-year college degree, without specifying the college
performance data from a prior month, resulting in a
or major (which would typically be on a diploma). This can help
considerable data lag of up to 30 or more days. Smart contracts
reduce oversharing of unnecessary personally identifiable
can track payments, delinquencies, and other performance data
information (PII) data in the credit application process.
15 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 16FSSC Use Cases
on blockchain and make such data available on a real-time lower-income consumers, whose bank accounts can be more
basis to all the permissioned actors in a transaction, eliminating volatile, by avoiding the potential for overdraft fees. These
the need to rely on stale data and manual processes, increasing better on-time payment performance metrics can also boost
transparency for the related securitization. their credit scores.
While the initial use of smart Smart contracts must, of course, be consistent in all respects Allowing settlements to be For cross-border transactions, allowing settlements to be made
contracts is not likely to made directly, rather than
replace the transaction through existing protocols,
with the terms of the related documents and the rating directly, rather than via existing protocols like SWIFT, can
parties traditionally used, a agencies and investors must have confidence that this is the
can facilitate international facilitate international lending for consumers in emerging
smart contract that is case. The initial use of smart contracts in securitizations is not
lending for consumers in markets. Rather than using correspondent banking and custodial
publicly available and subject likely to replace the transaction parties conventionally used, at emerging markets. This is service arrangements, transactions can be settled publicly and
to audit by market least until the time when rating agencies and investors have full also made possible by the transparently.
participants will be able to cost reduction associated
carry out tasks currently with providing that credit
confidence in such replacements. However, having a smart
performed by such contract, publicly available and subject to audit by the market
through removing By removing intermediaries and their associated fees, loan
transaction parties, which participants, could help streamline the diligence process. If the
intermediaries and their servicing activities have lower transaction costs. The ability to
could save on diligence market participants can trust in the integrity of the smart associated fees. provide transparent and cryptographically secure payment
costs. contract being utilized, and the accuracy with which it can histories can bring down costs by reducing the need for
perform various tasks that are currently performed by third-party redundant services within portfolio transactions for smaller
intermediaries, the diligence that is typically necessary to ensure lenders.
the accuracy of the tasks performed by such intermediaries can
Issuance and Investor Impact Reporting for Green Bonds
be reduced, and can therefore result in both time and cost
savings.
Loan Servicing Green bonds are bond
issuances that have an
environmental purpose and
Green bonds and their variants are bond issuances that have an
environmental purpose and which are structured to appeal to
Most settlements are not are structured to appeal to Environmental, Social, and Corporate Governance (ESG)
reflected in real time; there is
One of the benefits of distributed ledgers systems is the ability
ESG investors. Green bond investors. To avoid instances of “greenwashing” – labeling
a lag between the time of the
to remove both the friction and costs of intermediaries. Most issuances require both pre- projects that are potentially harmful to the environment as
payment and when the settlements are not reflected in real time. When a consumer and post-issuance evaluation beneficial -- green bond issuances require both pre- and post-
payment is actually “settled” and reporting that ordinary
bonds do not.
makes a loan payment, there is a lag between the time of issuance evaluation and reporting. For the issuance to be
in the lender’s account. payment and the time the payment is actually “settled” in the marketable, a Second Party Opinion (SPO) regarding the impact
Blockchain allows lender’s account. With blockchain, these settlements can occur and credibility of the proposed framework in relationship to the
settlements to happen in
minutes, rather than days.
in a matter of minutes, rather than days. While this obviously Green Bond Principles accepted in the ESG marketplace is
benefits the lender, it can also benefit the borrower, particularly required. The review includes an evaluation of the intended use
17 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 18FSSC Use Cases
of proceeds, the process to evaluate potential projects for There is a great opportunity transfer (St. Regis Hotel), few parties have thus far used
for blockchain applications to 5
disrupt the real estate
eligible sustainability criteria, management of proceeds for blockchain for payments and settlements. Because securities
compliance with issuer’s Green Bond framework, which outlines
their intended green objectives, and reporting on the actual
transactions space. issuances require many intermediaries and delayed settlement
times, there is great opportunity for cost reduction, investment
allocation of proceeds and relevant impact metrics. democratization, and the ability of smaller green bond issuers to
enter the marketplace using blockchain.
The evaluation criteria for Most SPO providers have proprietary systems for capturing and
these offerings is fairly
standardized, so a database
disseminating the pre-issuance SPO, but the evaluation criteria As green bond issuances become more prevalent, the ability to
schema development within is fairly standardized, so a database schema development demonstrate compliance with green bond standards will
blockchain is a viable option within blockchain is a viable option to bring down transaction become a valuable tool.
to bring down transaction costs for issuers. For post-issuance reporting, distributed ledger
costs for users.
V2X and Securitization
technology offers an immutable and transparent way to
demonstrate impact. Standardization of impact reporting is
beginning to occur, including by the Partnership for Carbon
Accounting Financials, which adopts uniform approaches by With hundreds of millions of More than 650 million vehicles are already connected to OEMs
asset class. For passenger vehicles, direct emissions from fuel connected vehicles on the
road worldwide, both OEMs
worldwide. This figure will only increase in the coming years with
and vehicle owners have
combustion and indirect emissions from electricity generation cars equipped with 4G SIM cards and soon 5G. Thus, masses
for EVs can be captured on blockchain and measured in
access to massive amounts amounts of data related to vehicle usage will become a
relationship to the targeted reductions stipulated by an issuer in
of data, which will only potential new source of revenue for OEMs but also for vehicle
its green bond issuance framework. In-vehicle telematics can continue to grow over time. owners thanks to the General Data Protection Regulation
provide much more accurate information on miles traveled and This data is valuable and can
be monetized in various ways.
(GDPR) in the EU, which will give these owners a right of
greenhouse gasses emitted (for gasoline-powered vehicles) ownership and access to data. Information on road and mobility
directly from the vehicle to the blockchain. Electric vehicles infrastructures, cars and drivers will be available in deferred
(EVs) can report on miles traveled and electricity consumed, time and/or in real time due to the advances in connectivity,
which can then be correlated with the emissions generated at artificial intelligence, blockchain, and other technologies.
the grid level. This kind of real-time impact reporting would
enable green bond issuers to efficiently provide a transparent, Several players in the vehicle data marketplace already collect
immutable record of compliance with their stated goals, adding the data from certain OEMs and resell it to other OEMs, local
efficiencies to the market. mobility authorities, mobility operators and others.
Some lenders have used blockchain in the structure, registration,
sale and distribution of green bonds. While some real estate
5. Robert Hackett, “Ritzy Aspen Hotel Sells Real Estate on Blockchain with Indiegogo’s Help”,
transactions have used tokenization to record ownership Fortune, August 2018, https://fortune.com/2018/08/23/hotel-real-estate-aspen-
blockchain-ethereum-st-regis-indiegogo/
19 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 20FSSC Use Cases
Thanks to advances in For real-time data, thanks to 5G and the low transfer latency The combination of fast small exception of tolled highways, marginal cost pricing isn’t
connectivity technologies, vehicle connectivity, easily
vehicles will be able to communicable geolocation,
that this technology offers, it will be possible to exchange possible for much of this infrastructure. Hence, much of the
exchange data between information in V2X (connected vehicle-to-everything
and secure identities will allow world’s transportation infrastructure is provided as a public
themselves and surrounding communication) and in particular between vehicles to improve
for micro-tolling and dynamic good, leading to chronic infrastructure financing deficits and
infrastructure in real-time. safety and the driving of semi-autonomous, even autonomous pricing. With micro-tolling inequities in use and payment burdens. The combination of fast
This rapid data exchange and cars and supplying information to DAS-type equipment, for providing predictable cash vehicle connections, enhanced positioning, and decentralized
overall data availability can be flows, those revenue streams
leveraged within many use can then be securitized,
example: exchange of information to avoid a collision in the identities will permit efficient tolling for much of this
cases. event of a road accident or a sudden traffic jam, payment for a
ushering in a massive new infrastructure, predictable cash flows and ushering in a massive
new road infrastructure which will be financed on the basis of
asset class. new asset class available for financing through securitization.
its use per kilometer by motorists, etc.
Vehicle wallets will be critical
to monetizing telematics data
Vehicles equipped with an on-board hard-wallet will be able to
Non-Risk-Based Credit
in real-time, as they will be
monetize in real time this information transmitted peer to peer
able to execute payments thanks to the execution of smart contracts giving payment
Blockchains allow for the The issuance of debt, at its core, is a statement of trust. In the
associated with transacting orders and making financial settlement. These smart-contracts
creation of a digital identity,
that data. Moreover, smart unlocking the real-time
past seventy years, since the advent of bank issued credit cards,
will distribute payments between the various stakeholders of the
contracts will enable new road vehicle and data infrastructure according to the stipulations of potential to use other financial institutions have used credit scoring as a proxy for risk
and infrastructure pricing indicators to build a analysis since it allows for instant credit-decisioning.
systems. reputational asset profile for
the agreements integrated into the smart-contracts. In this
Unfortunately, for those who have thin or no credit files, their risk
model, all stakeholders, OEMs, vehicle owners, data
otherwise credit-invisible profile is not easily quantifiable and is, therefore, priced higher
infrastructures, and others are encouraged to cooperate
consumers. than might otherwise be the case.
according to this model of intelligent “coopetition”. This model
makes it possible to avoid recreating data oligopolies as has
Credit scores are lagging indicators of risk, using data that may
been done on the Internet with Google, Apple, Facebook, and
not be current. They are also built on inductive reasoning and
others.
assuming that the past is a predictor of the future. Blockchain
provides a way to establish an individual digital identity,
In addition, smart contracts will make it possible to isolate
unlocking the real time potential to use other indicators (such as
revenues and thus the possibility of financing of new road and
cell phone payments that could be recorded on chain) to build
mobility infrastructures, including through securitizations.
a reputational asset profile for otherwise credit-invisible
consumers. This strategy may be particularly useful in emerging
Global transportation infrastructure is expected to require over
6
economies that lack trusted credit scoring models.
$94T in investment between 2016 and 2040. With the relatively
6. Oxford Economics, Global Infrastructure Outlook; Infrastructure investment needs 50 The ability to track non-traditional sources of credit, such as
countries, 7 sectors to 2040”, https://www.oxfordeconomics.com/recent-
payments for utilities, phones, or rent, can make credit more
releases/Global-Infrastructure-Outlook.
21 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 22FSSC Use Cases
For thin-file applicants, this readily available to these consumers who are not active A fractional ownership model transportation models appear on the market, such as car sharing
provides accessible credit in may prove to be a cost-
a system otherwise effective and desirable
participants in the conventional financial system. The and new or used car rental of varying duration. However, we
unavailable to them. This may microfinance movement facilitated peer-to-peer lending with
alternative to vehicle expect that outright ownership may remain a popular
be particularly useful in funds from developed countries flowing to borrowers in
ownership for many. preference. The desire to take your own car for a weekend
emerging economies without countries with less developed financial markets. Allowing for the Blockchain technology allows getaway may remain, for many, the first choice for a long time.
credit scoring infrastructure. development of an alternative risk assessment process, using for the immutable recording The development of a fractional ownership model (ownership of
and cost accounting between
parties, and the tamper-proof
data captured on blockchain, could bring together a wide pool an vehicle by multiple individuals, each of whom has specified
of potential lenders and borrowers.
recording of shared-usage ownership and usage rights) may respond to the low rate of use
rights and restrictions. of vehicles while honoring, to a certain extent, the desire to own
Fractional Ownership of Mobility Assets a car. Such a model becomes possible with the use of
blockchain technology, including payments directed through
smart contracts. We can also imagine a model of individual or
Today, cars in metropolitan The vehicle has been a symbol of emancipation and freedom for corporate fractional ownership of autonomous vehicles or robot
areas are used only 5-10% of
the time. The rest of the time,
most of the 20th century. Freedom of movement has become taxis.
the cars sit still in lots or on available to almost all. The growth in vehicle sales over the past
streets. These vehicles are 20 years, particularly in China where sales of new cars have With the capacity of immutable, and tamper-proof records and
productive capital, but sit risen from 0.6 to 25.3 million annually, demonstrates the measures, cost accounting between owners is done
unmonetized and unutilized importance of this freedom of movement. programmatically. Owners through their fractional ownership
for over 90% of the time. right get a shared use right and are liable for their obligations
The vehicle makes it possible to get from point A to point B
based on their share of ownership and the use they make of that
relatively efficiently, to find a job more easily, to go on vacation
vehicle.
or to go out on weekends. The car is a sign of freedom and also
a display of social status for some. But today, cars in
This model is virtuous because the users of the cars are also the
metropolitan areas are only used 5% to 10% of the time. The rest
owners. They are therefore collectively responsible, as opposed
of the time, cars remain immobilized in parking lots or are
to a classic car sharing model provided by a platform operator
parked in the streets. In addition, private car travel is
where nobody is responsible. In addition, in the case of the
increasingly restricted or banned in major cities in order to
sharing models managed by OEMs, the OEMs are obliged to
reduce traffic jams, make way for public transportation or bikes,
provide capital and/or financing to finance the cars, with very
and to cut down on carbon emissions. In this context, we can
poor financial performance so far.
see that the current model is not totally satisfactory for the
owners or for municipalities.
Blockchain technology has the potential to make it possible to
develop fractional ownership on a scale larger than previously
The market is increasingly moving towards transportation models
experienced.
where travel is consumed as a mobility service. Different
23 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 24Conclusion Bibliography
Blockchain technology is strongly positioned to create widespread shifts within the AdvisoryHQ. “KYC vs. CIP vs. CDD | Know Your Customer Rules and Guidelines.” Accessed
April 2021. https://www.advisoryhq.com/articles/kyc-vs-cip-vs-cdd-know-your-
traditional processes of vehicle finance. The widespread presence of trust services
customer-rules-and-guidelines/.
throughout those processes are precisely where distributed ledger technology
provides value. The potential for smooth, frictionless operation of multiparty European Central Bank Ecosystem.“The Social and Private Costs of Retail Payment
Instruments: A European Perspective.” September 2012.
applications by ensuring the availability of trusted shared data is enormous.
“https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp137.pdf.
Experian. “Automotive Industry Insights Finance Market Report Q4 2020.” March 2021.
Blockchains provide the fundamental technology, but multi-party applications
https://www.experian.com/content/dam/marketing/na/automotive/quarterly-
require the presence of multiple parties interacting. Understanding and creating
webinars/credit-trends/2020-quarterly-trends/v2-2020-q4-state-automotive-
interoperability between those parties is precisely the focus of the MOBI FSSC WG. market.pdf.
The FSSC Standard leverages blockchain to provide a trust layer, where all parties
Hackett, Robert. Fortune. “Ritzy Aspen Hotel Sells Real Estate on Blockchain with Indiegogo’s
are able to validate each other’s identity, leveraging an immutable ledger that Help." August 2018. https://fortune.com/2018/08/23/hotel-real-estate-aspen-
allows for the verification of the authenticity of data, resulting in a shared platform blockchain-ethereum-st-regis-indiegogo/.
for deploying interoperable applications.
Krier, Charles, and Wagener, Katharina. PayTechLaw. “eIDAS and AMLD5: A perfect match?”
September 2020. https://paytechlaw.com/en/eidas-and-amld5-a-perfect-match/.
The applications and use cases enabled by such a platform are precisely the focus
Oxford Economics. “Infrastructure investment needs 50 countries, 7 sectors to 2040.” July
of this paper. Today, each of the use cases discussed in this paper are impeded by
2017. https://www.oxfordeconomics.com/recent-releases/Global-Infrastructure-
operational inefficiencies, which are all caused by the need for trust services. Outlook.
Blockchains and standards created by consortia like MOBI result in a neutral
environment where all the stakeholders can engage with one another on equal
footing. For vehicle finance, the implications in terms of new services and
operational efficiencies are manifold.
25 © 2021 MOBI — FSSC Business White Paper © 2021 MOBI — FSSC Business White Paper 26MOBI is a nonprofit industry consortium of many of the world’s largest vehicle manufacturers,
along with many startups, NGOs, transit agencies, insurers, toll road providers, smart city
leaders, and technology companies working to accelerate adoption and promote standards in
blockchain, distributed ledgers, and related technologies.
MOBI is creating simple blockchain-based standards to identify vehicles, people, and
businesses in order to securely exchange and monetize data, and pay for mobility services,
with the goal of making transportation more efficient, affordable, greener, safer, and less
congested. MOBI itself is technology and ledger agnostic. For additional information about or
joining MOBI, please visit our website.
dlt.MOBI @dltMOBI MOBI @dltMOBI fssc@dlt.MOBIYou can also read
