Program Management Lead, Citi Innovation Labs
Head of Strategic Partnerships, Citi Ventures ICG D10X
When a major vehicle manufacturer announced in January that it plans to stop selling new combustion-powered cars and light trucks by 2035 in favor of battery-powered vehicles, it was one of many recent signals that the automotive industry is on the verge of a transformative switch from gas to electric.
Driven by improvements in battery technology, the introduction of carbon taxes, and increasingly urgent concerns about climate change, this transition is quickly accelerating and will ultimately require electricity providersto build more charging stations, generate additional power, and create cleaner and more versatile grids. Likewise, business models for energy consumption in a world dominated by electric vehicles (EVs) are still being created. Energy providers, car companies, and other players are exploring opportunities to redefine their relationships with customers.
What sort of role will financial services play in this world, particularly when it comes to payments? The answer may lie in the "Thing Economy," a new and fast-approaching era of physical objects behaving as autonomous financial actors. Enabled by the ongoing growth of the Internet of Things (IoT) and advances in connectivity, automation, and data technology, the Thing Economy has the potential to transform entire economic sectors—including energy. As the energy sector moves from fossil fuels to renewables, widespread EV charging and the potential for EVs to verify their identities, authorize services, and make payments on their own behalf will present new opportunities for financial institutions.
The push to replace gas-powered cars with EVs is coming from both the private and public sectors. Many large automakers are expected to introduce dozens of new EV models in coming years. The United Kingdom and Denmark are ending the sale of new petro and diesel vehicles by 2030, while California aims to do the same by 2035. In January, the Biden administration announced plans to replace the government's entire fleet of 645,000 cars and trucks with EVs.
By 2040, over half of new vehicles sold are predicted to be electric, up from 2.7% today. This will create new opportunities for electricity providers and consumers—and new challenges. Currently, most EV owners plug their vehicles in at home and charge them overnight. But that option isn't practical for people who live in multi-unit dwellings or park on the street, nor for long-haul truckers or other drivers who need to charge their vehicles quickly en route to their destinations. For EVs to be widely adopted, therefore, charging will need to become far more accessible and convenient—the equivalent of today's ubiquitous gas stations. That means building an infrastructure of residential street chargers and high-speed charging stations along highways that are interoperable by different vehicle brands and types.
Again, both public and private players are getting in on the action. President Biden has set a goal of building 500,000 new public chargers by 2030, a five-fold increase in the U.S.'s current capacity. One multinational oil and gas company has announced a plan to slash oil production and deploy 70,000 EV charging points—up from 7,500 at present—over the coming decade. And a major vehicle manufacturer has even developed a mobile EV charger that can autonomously navigate parking areas, power up an EV, then make its way back to its outpost without the intervention of humans.
Wherever and however a particular vehicle charges—fast or slow, at home or at a highway rest stop—someone has to pay for the electricity. How that occurs is where the Thing Economy comes into play.
Financial interoperability is key. Transactions in the EV charging economy will take place in several ways—between energy suppliers and charging points; between charging points and individual vehicles and fleets; and among charging points, vehicles, and eMobility service providers—and key players will need to develop solutions to process them all. The U.K. government, for example, expects the industry to develop a roaming solution across its EV charging networks that will allow drivers to use any public charge point through a single payment method, without needing multiple smartphone apps or membership cards.
Financial institutions will have an important role to play in facilitating interoperability within the ecosystem and across the value chain created by EV roaming solutions by providing collections, reconciliation, clearing, settlement, and commodity price management. Vehicles with autonomous transaction capabilities can enable this—for example, by allowing an electric delivery van to charge anywhere, even at a residential charge point, and have the cost consolidated on the delivery fleet's utility bill rather than on the resident's bill.
While today's drivers have been habituated to pay for fuel with cash or credit and debit cards, mass adoption of EVs should create a window for forming new consumer behaviors and matching business models. Vehicles capable of paying for their own electricity likely will be able to pay for other needs as well, including parking, tolls, food for their drivers, and even repairs—all of which will offer additional opportunities for financial institutions to integrate products and services.
EVs are also an opportune area for designing, deploying, testing, and evaluating the "Know Your Machine" (KYM) technology and processes that banks will need to establish trust and prevent fraud in the Thing Economy. Citi Ventures portfolio company Car IQ is building a digital identity and payment solution for vehicles that could contribute to the development of KYM.
Traditional power grids are one-way systems: power plants generate electricity that flows to homes and businesses, the same way gasoline flows from oil wells to refineries to pumping stations to gas tanks. EVs and renewable energy are different—they allow power generation, storage, and use to be distributed and multidirectional. For example, a building with rooftop solar panels can receive power from a utility but can also produce electricity that can be sold back to the grid.
The storage capability of EV batteries could play an important role in this new system, and in the large-scale transition to renewable energy. Renewables such as wind and solar are intermittent energy sources, and are therefore unreliable without storage capacity. Using EV batteries for energy storage would support the growth of distributed energy generation for individual consumers and the grid as whole.
In the future, it's possible to imagine a networked ecosystem of smart energy infrastructure components—what some have dubbed an "Internet of Energy"—that reduces waste, increases efficiency, and lowers costs through the convergence of digitization and electrification. In this scenario, the new business models created for EVs could apply to a much broader ecosystem of autonomous machine transactions taking place among a wide variety of devices that consume, supply, and store power.
Major players already are exploring these areas. The same multinational gas and oil company mentioned above recently partnered with a major technology company to drive digital energy innovation and advance net-zero emissions goals in areas including consumer energy and IoT solutions. Additionally, o ne of the world's largest oil producers recently announced a long-term plan to shift from supplying fossil fuels to generating renewable energy—a plan that includes developing nearly 450,000 new EV charging stations by 2025.
As EVs and other machines able to conduct transactions on their own behalf redefine the business of energy, there will be opportunities for financial institutions to form similar partnerships, build solutions, and embed products that facilitate trust, security, and interoperability. The time to explore the future is now.
For more on the Thing Economy, click here.