Case studies

Open banking in car sales – Cazoo and TrueLayer

14 December 2022

Since 2021, an unlikely coalition of economic factors has turned the UK’s second-hand car market on its head: in previous years, it was usually the case that the value of a new car started to depreciate as soon as it was driven away from the dealership.

However, the pandemic put paid to that. Lockdown, a fear of public transport, and a series of supply chain failures all combined to create a pent-up demand for second-hand cars, sending their value spiralling upwards.

In the first quarter of 2022, around 1.8 million second-hand cars changed hands, while average used car values in April 2022 were 32.2% higher than a year ago.

At the same time, the way in which people buy used cars also changed, following the broader trend to online sales. This has been facilitated by new services such as online car retailer Cazoo.

Launched in 2018, Cazoo set out to transform the UK’s car buying and selling experience by making buying or selling a car no different to ordering any other product online. The aim is to enable people to seamlessly buy, sell or finance a car entirely online for delivery or collection in as little as 72 hours.      

Challenge to handle high-value purchases

Because of the high-value nature of most transactions, car sales have been a sticking point for dealers and buyers alike. Carrying large amounts of cash presents a risk, credit cards may have limits that are too low for the purchase, and cheques may not clear in sufficient time.

Boaz Valkin, Head of Product at Cazoo, explains: “When people purchase cars, it’s likely the second largest purchase of their lives, after a house – our customers typically pay by credit card or through a loan provider. We wanted a third option that provided minimal friction and where funds settle quickly.”

Sitong Wei, Payments Product Manager at Cazoo, adds: “One huge pain point for us and our customers was card transaction limits, as a car retail purchase obviously means a high average order value. Open banking payments offered a solution to this.”

“One huge pain point for us and our customers was card transaction limits, as a car retail purchase obviously means a high average order value. Open banking payments offered a solution to this.” Sitong Wei, Payments Product Manager, Cazoo

Cazoo partnered with payments provider TrueLayer to deliver its open banking solution, and integrated TrueLayer’s payments API into its online offering in May 2021. This offered customers another choice of how to pay for their car, adding open banking to the list of payment options.

Instead of having to wait one or two days for a payment to clear, the buyer sends the payment via open banking, and Cazoo receives it in almost-real-time.

Of course, all payment methods have pros and cons, so the individual consumer should carefully consider his or her own circumstances, but open banking offers a great new payment option for consumers.

Buying a car with open banking

Once the buyer has chosen their car from the Cazoo portal, and decided to make their purchase, they are taken to the payment journey.

  1. The customer reviews the details of their order (as with any online purchase), collection method etc, and chooses their payment method.
  2. They initiate the payment process via a consent screen and choose their bank.      
  3. They are then sent to their banking app to authenticate the payment.
  4. The customer is sent back to Cazoo to confirm the order and Cazoo request the payment.

In the UK, all Cazoo payments are sent via the Faster Payment rails, which means, in most cases, this takes a matter of minutes. Customers appreciate that there’s no premium for a speedy payment.

Other benefits from open banking

Cazoo also noted additional benefits from this payment method, including helping to tackle card-not-present fraud, having bank authentication baked into the payment experience, and a reduction in costs compared to card payments.

The company no longer has to match incoming funds with expected funds, handle mis-directed funds or mis-matched reference numbers.

The uptake has been strong, and Cazoo now estimates that one in four of its buyers use the open banking option to pay.

Selling a car

The car retailer also enables people to sell their car to Cazoo via its online platform. By integrating TrueLayer’s payments and data API into the customer journey, the seller can enable Cazoo to make a fast payout before handing over their car to the car retailer. The seller will normally complete two-factor authentication via their banking app and – in most cases – see the payment in their account before the car has left their driveway.

They don’t have to share or manually enter their bank details, and the near-instant speed of the payment has been a massive plus for Cazoo’s customers.

Customer education

As many of Cazoo’s buyers and sellers were unfamiliar with open banking, and account information sharing, the company needed to highlight the benefits of the method to its customer base.

Wei pointed out that the company needed to reassure customers that access to an account is limited to the specific purpose of funds being transferred into or out of their account, depending on whether they are buying or selling – and only happens with the customer’s explicit consent.

Occasionally, the payment process is slowed by fraud checks, bank downtime or the need to manually retry the payment, but most payments are received within seconds.

Integrating open banking solutions

For other online retailers considering integrating an open banking payment solution into their ecommerce proposition, Wei offers some useful insights. These include:

  • Testing linking across all the UK’s banking providers – to help understand how the process works with different banks, particularly for high-value payouts.
  • Developing a clear process for retries – bank downtime can sometimes prevent payments going through, so it’s important to have a transparent process and timely customer communications to manage this.

With a recent report from Automotive Management suggesting that open banking could become the dominant form of payment in car dealerships by 2030, it seems that the transformation of the UK’s car sales market is set to continue.

Notes to editors

The Open Banking Implementation Entity does not endorse any of the products or companies mentioned here.

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