Idea Bank’s decision to offer car loans where the repayments vary in line with monthly mileage will lead to increased market share for the Polish provider. Tailored pricing will prove especially attractive for those with irregular driving patterns.
Happy Miles is a new motor finance proposition from Idea Bank in Poland. Rather than tying borrowers into a fixed repayment schedule every month, payments are linked to the mileage covered: a GPS device in the vehicle streams data to the lender, which multiplies the mileage by a given rate and adds this to a small fixed cost to calculate the size of the repayment.
This is distinct from black box car finance, also called pay-as-you-go car finance, where an immobilizer is fitted to a vehicle that is being bought on credit, which can be remotely activated by the lender if the borrower fails to make repayments.
The launch of Happy Miles plays into two emerging trends in banking. Firstly, it highlights the growing importance of the Internet of Things, whereby internet-connected devices provide real-time feedback on key metrics. To date, this has had more impact in the insurance sector, where the use of telematics has opened up new possibilities in the motor and health insurance markets.
However, banks will make more use of this technology in 2017 and beyond. For example, Intelligent Environments is marketing an Internet of Things banking platform that, among other things, can turn down a Nest thermostat if energy bills are too high.
Secondly, payment according to use and individual circumstances, rather than flat rate pricing, is becoming the norm. This is the case with streaming services such as Netflix and Spotify, where consumers pay for access rights rather than outright ownership. Similarly, online retailers can tailor pricing according to factors such as time of purchase, type of browser being used, and the number of times a buyer has visited the relevant web page.
Most strikingly, Uber’s app can monitor phone battery levels: research indicates that users are more likely to accept higher fares if their battery is low, meaning that Uber could, if it wants, impose surge pricing in such instances.
Such developments may prove controversial, especially if there is a lack of transparency around the precise factors used to determine pricing. However, the repayments under Happy Miles are calculated by a simple formula, meaning consumers will be able to estimate their forthcoming bills in advance.
Idea Bank’s offering will prove an attractive solution, particularly for businesses that own large vehicle fleets, which will appreciate operating costs that vary in line with business activity as it will make cash flow easier to manage. And looking at the wider picture, the introduction of Happy Miles suggests that the days of a single, uniform price for a given product being charged to all consumers are coming to an end.
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