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How humans have sent each other money throughout history

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7 months ago

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MoneyTransfers.com compiled 10 technologies that people have used to send money through history, from the earliest checks to peer-to-peer cash apps.
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How humans have sent each other money throughout history

Today, most currency is electronic, swirling over the internet from banks to businesses and even in and out of the Federal Reserve. But, of course, that hasn’t always been the case. Before the internet—before even the telegraph, before the idea of currency itself—various modes and technologies had to be invented in order for humankind to evolve methods of fair trade, compensation, and reimbursement. Before modes of currency were developed, bartering was the most common means for acquaintances to exchange goods and services; it required that both involved parties come to an agreement as to the innate value of what was up for exchange.

The earliest humans likely traded directly, bartering freshly gathered or hunted food for help chopping wood or other desirable goods and services. In some civilizations, forms of currency included shells and stones—including the massive, collective rai stones of the island nation of Yap and the almost sacred regard held for cowrie shells in West Africa. Coins came about as a way to carry precious metals in a standardized measure, and later simply common metals that were durable in the marketplace.

As societies evolved over time, financial technologies were developed to keep pace with not only growing populations but the advent of new and dynamic forms of business and commerce. Many such developments effectively began to replace the need for face-to-face financial transactions, instead using communications networks to move and transfer money with very little need for human intervention.

Global society continues to invent new means by which to handle its financial exchanges. In another 50 or 100 years, there may be new forms of currency transactions that we can’t even imagine today. MoneyTransfers.com compiled a history of how humans have exchanged money throughout history, from bank notes and wire transfers to blockchain technology and cryptocurrency.

Engraving depicting a caravan of traders and camels on the silk road.

Ipsumpix/Corbis via Getty Images

Early 800s: Muslim traders invent the sakk—an early form of the modern check

Today, paper checks are believed to be going the way of the dodo—the average person might have the same set for years or even longer, the need to use them diminishing by the year. But at one time, they were a cutting-edge development that also served an important purpose. Muslim traders in the 9th century often had to travel over huge distances because communities and settlements were sparse. Instead of today’s paper currency or plastic credit cards—both very light to carry—they were lugging around pounds and pounds of heavy metal coins. To both simplify the buying and selling of goods and to reduce the undue burden on traders (and their modes of transit, e.g., camels), the sakk was born. A kind of formalized IOU, the sakk enabled merchants to receive compensation directly from a trader’s bank account.

Archival Barclay & Co. Bank check dated 1793

Universal History Archive/Universal Images Group via Getty Images

1864: First money orders are sent through the U.S. Postal Service

A money order is a way to send money through the mail without having to send cash or a check. These have long been a way for people outside the traditional banking system to still send money for goods and services or to family in other areas. Money order systems were attempted by private enterprise in Britain as early as 1792, ultimately unsuccessfully, but the money order as a formal system began in earnest in the United States in 1864 through the national postal system.

It was popular among Civil War soldiers as a means of sending money home. Shortly thereafter, in 1869, foreign currency orders were allowed through the system as well. Britain officially launched its own system—referred to as postal orders, rather than money orders—in 1881. Today, many banks and credit unions offer fee-free accounts that even low-income people can afford to use. Even so, money orders remain a very popular way to send money with less risk of loss.

Illustration depicting operating room of Western Union Telegraph Company

Bettmann // Getty Images

1871: Western Union launches wire transfer service

In 1851, Western Union was founded as the New York and Mississippi Valley Printing Telegraph Company. We don’t see a lot of telegraphs today, but before the telephone they were a critical way of delivering information quickly. The Western Union company learned that they could piggyback their existing telegraph technology to do things like transmit financial information and stock market numbers—and, yes, money. Today, they operate a network of over 455,000 agents in 200 countries and territories and perform millions of money wire transfers each year both at bricks-and-mortar locations and via the internet.

Hand holding cash in front of suitcase filled with cash

Tereshchenko Dmitry // Shutterstock

1920s & 1930s: Money laundering gains prominence during U.S. Prohibition

Money laundering is the process of taking money gained through illegal or illicit activities and, by filtering it through an intermediary, making it appear to have originated from legitimate sources. Contemporary society considers this to be criminal behavior, but hiding money is a crime of context, and context is never completely the same. In this regard, money laundering began thousands of years ago in China when merchants laundered profits after local governments prohibited various forms of commerce. Since then, black market dealings, bribery, extortion (think here of “protection” money paid to organized crime syndicates), and a myriad other illegal schemes gave rise to evermore devious methods of hiding and “cleaning” bad money.

When the 18th Amendment to the U.S. Constitution made the import, manufacturing, sale, and consumption of alcohol illegal in 1919, one perhaps natural result was an explosion of organized crime, with multiple outfits vying for the upper hand in the now-illicit world of drink. In order to hide their ill-gotten profits, crime syndicates would purchase legitimate businesses and then combine the financial streams of both legal and illegal operations. Such behavior led to the famous conviction of crime lord Al Capone for tax evasion, when prosecutors were able to prove that illegally obtained money went directly to him and was never declared to the government.

A group of bankers processing transactions

Evening Standard/Hulton Archive // Getty Images

1973: Founding of the Society for Worldwide Interbank Financial Telecommunication (SWIFT)

The Society for Worldwide Bank Interface Financial Telecommunication, or SWIFT, is an organization that helps smooth international banking transfers. Every country has slightly different legal systems and banking regulations, and bringing them together to move money around the world is a huge, complicated project. SWIFT was founded by 239 banks across 15 countries, and today it is used in more than 200 nations. As with wire transfers and other financial communications, SWIFT is a platform that provides a secure platform for financial transactions between international banking establishments. The international society has a domestic U.S. counterpart in the Automated Clearing House, which enables electronic funds transfers.

Woman’s hands type on a laptop computer

Jeff Overs/BBC News & Current Affairs via Getty Images

1990s: Internet payment systems are introduced into consumer markets

Credit cards changed how people felt about spending against their own earnings. When the Diners Club card first appeared in the 1950s, it was an aspiration concept; it sold the idea of luxury, of being able to have what perhaps you couldn’t entirely afford. In the intervening decades, credit cards developed into an almost de facto method of buying, well, almost anything.

Then came the internet and almost everything about modern life was rapidly reshaped in ways almost no one could have predicted. By the 1990s, all transfers from the Federal Reserve to banks (and vice versa) were done electronically. The very first consumer internet buy is believed to be a pizza order in 1994 via Pizza Hut’s pizzanet.net website. Less than a year later, the world welcomed Amazon. Today, people now use direct deposit on accounts they only interact with online, and then spend that money online or through apps or other forms of smart payment. Researchers estimate that just 8% of currency in the entire world now exists as cash in circulation. In 2021, U.S. consumer online spending exceeded $870 billion—that’s 14% more than 2020.

Smartphone being used on vending machine

agencies // Shutterstock

1997: The first digital wallet is created to pay for Coca-Cola at vending machines

Today, technologies like Apple Pay have made it quite commonplace to carry your financial information in a digital “wallet” in your smartphone. But it is surprising that the first instance of paying by mobile phone happened 25 years ago. In 1997, a very limited rollout of special Coca-Cola vending machines in Helsinki allowed people to have a Coke via text message.

Since then the concept of a digital wallet has gone from strength to strength. Google Wallet was introduced in 2011, followed shortly by Passbook by Apple, which has since morphed into Apple Pay. Different countries have their own proprietary versions of these services that conform to local regulations. In just the last few years, other retailers and vendors have begun to offer their own digital wallets, among them Walmart, Samsung, and Venmo.

Finger pressing computer keyboard key

Parilov // Shutterstock

Late 1990s: Microtransactions are built into video games to convert currency to digital assets

We think of microtransactions as a 21st century innovation, with games like Candy Crush that squeeze users to spend $1 at a time on extra lives or to unlock content. But the first instance of microtransactions dates back to 1997, when a developer on a multi-user dungeon game used them to sell in-game credits players could redeem for character bonuses. MUDs are even far older than 1997, but they’d previously asked users to pay hourly for access.

The advent of web portal and internet service provider America Online—more commonly known as AOL—had normalized a different fee structure, the flat monthly rate, effectively killing the per-hour model. In order to diversify the possibilities for players and revenue generation alike, Iron Realms Entertainment founder Matt Mihaly launched Achaea as a free-to-play game that also offered players the chance to buy credits for enhanced abilities or character traits within the game.

Person using phone looking at trading chart on laptop

oatawa // Shutterstock

2000s: Blockchain is developed as a distributed ledger for monetary transactions

This list includes several financial technologies that are huge networks with centralized authorities, like Western Union and SWIFT. Blockchain is the opposite: a technology whose selling point is that there is no centralization. Transactions occur in, well, chains—with each subsequent transaction an additional link that also secures what came before it. While several pieces of tech that go into blockchain existed beforehand, the original blockchain was designed to support bitcoin in 2008, and new cryptocurrencies have continued to spring up since. Blockchain is closely linked with cryptocurrency at this point, but experts cite other opportunities to use it, such as for supply chain management.

Hands with mobile phone application to receive money

Rido // Shutterstock

2010s: Rise of cash transfer apps enable daily microtransactions

If the development of modern financial transaction systems is a spectrum, on one end there are traditional financial networks like SWIFT, and at the other end are decentralized cryptocurrencies. Holding the middle ground, in a way, are peer-to-peer financial apps, which allow users to pay each other for pretty much anything, from pizza nights to shared Lyfts, or to support groups and organizations who use services such as Venmo or Cash App for fundraising and investment purposes. These apps typically allow very fast withdrawal or resending of funds, making them super flexible. The popular digital wallets Apple Pay and Google Pay both support peer-to-peer money as well. Today, you can even directly send money using many social media networks.

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Are realtors too valuable to be disrupted by technology?

Tens of billions of venture capital dollars go into proptech every year. But realtors remain critical middlemen for most consumers. Is this just the way it will always be? Here’s a look at how tech is changing residential real estate – and how it’s not.

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9 hours ago

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March 27, 2023

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The tech industry repeatedly sees itself as a disruptor — particularly of industries with inefficient models with unnecessary costs baked in.

Why shouldn’t real estate be a prime target for tech?

As Forbes notes:

“Real estate is the only mammoth-size market remaining in which middlemen (brokers/agents) have complete control of the process. The operative members of the transaction (buyers/sellers) are withheld from direct communication and limited in resources and transparency. They are at the mercy of the middlemen in a world where other industries are constantly being refreshed, redesigned, and automated.”

Still, Canadian (and American) realtors are, to date, disruption resistant. Canadian realtors extract billions in value every year for their work. This is just how real estate works in this country, but it is kind of odd. Especially because Canada’s housing crisis is exactly that: a crisis.

Canada needs to build 3.5 million extra homes by 2030 to ensure affordable housing for everyone living in the country. That’s on top of the expected build out of 2.3 million homes that are currently planned.

That’s a shocking number when you consider the United States, with ten times the population, is short a relatively modest 6.5 million homes.

This housing gap means some version of the following story is happening in Canada basically every single week:

A seller wants to put their home on the market. They sign with a realtor who shares data on how to price the property, photographs it, lists it on MLS and advertises it. Depending on the seller, the realtor may provide significant guidance on the process of selling a home. People tend to get nervous when they’re selling their single biggest asset.

Still, the whole process can be over in a matter of weeks — a win for sellers, presumably. Well, sort of.

This process can be efficient in a hot market, but it also leaves many sellers with an odd taste in their mouths as they watch their realtor and their buyer’s realtor walk away with commissions of thousands, if not tens of thousands, of their dollars.

So, why hasn’t tech made more headway in bleeding out these seemingly unnecessary costs for buyers and sellers?

It’s not for a lack of new models, innovation, and capital spending. Investors allocated more than $32 billion USD into proptech companies in 2021. (‘Proptech’ just means technology solutions that enable the buying and selling of residential and commercial real estate). By 2028, the global proptech market is expected to reach $64.3 billion USD.

The investment is there. But so are the realtors. So, what changes are happening?

Proptech platforms are creating more informed buyers and sellers

Consumers are seeing the results of the money that has poured into proptech over the last decade. During the home-buying frenzy that followed a certain pandemic, many buyers toured properties virtually, and made buying decisions without ever being inside the place they’d soon call home.

But that’s just the latest evolution of real estate technology for consumers. Much of the first wave of proptech has already become second nature for many of us. We all have access to powerful, data-driven tools and platforms to aid us when it’s time to buy or sell.

Just a few examples:

  • Zillow is a one-stop digital marketplace that serves home buyers and sellers, as well as renters and landlords. It goes well beyond MLS, with deep resources and functionality like property valuation estimates. It’s the largest real estate website in the U.S. with over 60 million monthly views – and it’s increasingly popular in Canada.
  • Redfin is a real estate brokerage that offers lower than standard brokerage fees for its agents to sell residential homes. The company operates in both Canada and the U.S.
  • Trulia is similar to Zillow but offers additional functionality like crime maps by area, neighborhood profiles, and estimated monthly property upkeep costs. Trulia was acquired by Zillow in 2014 but continues to run as a separate platform.
  • Bōde is a Canadian platform that enables sellers to list their properties for free. Then they market the listing on platforms like Zillow and MLS. When a buyer and seller connect, Bōde facilitates the sale of the home and charges a 1% fee (up to a maximum of $10,000) on the final sale price. No realtor is involved.

While consumers love platforms like these and are doing more research on their own, they still gravitate to realtors when it comes time to sell or buy. A recent CBC article noted that:

“While specific numbers are hard to come by, all indications suggest that private sales make up a tiny sliver of overall real estate deals in Canada. For example, For Sale By Owner recently had some 116 listings in all of Ontario, while some mid-sized cities in the province showed more than 1,000 on MLS.”

Change is coming for everyone – from buyers to sellers to realtors

Still, the forecasts suggest this initial wave of proptech innovation may lead to more significant changes in the years to come. 

A much-quoted Oxford University study from 2013 found that “automation is projected to replace 50% of all current jobs in the next two decades. The same study predicts automation is 86% likely to replace traditional “real estate sales agents” and 97% likely to replace “real estate brokers”.” By late 2020, technology had replaced over 60 million jobs in the U.S. alone, with the World Economic Forum predicting tens of millions more to come, with fully 50% of jobs done by machines by 2025. 

It’s clear that the rate of automation isn’t exactly slowing down.

Blockchain, the distributed ledger that promises to destroy unnecessary middlemen across industries, offers the potential ability to reduce the need for realtors, through its ability to protect against fraudulent activity through decentralized smart contracts. 

But widespread adoption of blockchain technology hasn’t happened in any major industry, much less a massive asset class like real estate. And blockchain alone doesn’t eliminate the need for home buyers and sellers to get expert counsel from someone during a transaction.

And AI has promise and potential, sure. It can already do things with data that no human can. But buyers and sellers seem to consistently value empathy, human interaction, negotiation skills, and a realtor’s personalized knowledge of a community or property type. This is especially true when someone is making the life-altering choice to buy or sell a house. If it was your house, would you want the robot or the person?

So far, most Canadians are choosing the person. (The same is even true with another major life purchase, as we’ve recently reported.)

But there are more changes afoot.

Think back to that theoretical seller that sees their house sold in days and in return sacrifices tens of thousands of dollars in commissions. Is that a good deal for them? Maybe not.

That insight is at the root of Bid My Listing, a new startup from entrepreneur Matt Proman and real estate bigwig Josh Altman.

Bid My Listing enables sellers to solicit bids from realtors to list their house. As Proman told Entrepreneur.com:

“I had a lot of agents knocking on my door, leaving their business cards that they wanted to represent me in the transaction.”

Proman thought his Long Island home would move quickly and signed a six-month exclusive listing agreement with an agent. “I waited and waited and waited,” he said. “And I watched two other houses sell on my block.”

“I said, ‘I will never, for any of my other houses, give my listing away for free. The next time the agents have to put their money where their mouth is and have skin in the game.

So, while realtors may exist long into Canada’s real estate future, tech may eventually create major changes in their roles and how they’re compensated. They’re likely to find themselves having to adapt to a changing landscape where buyers and sellers want more value for the commissions they pay on a real estate transaction.

If they’re willing to pay them at all.

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Tech agility and relationship building among pillars of digital transformation for CIOs, HBR report finds

A look at HBR’s recent report about the changing role of CIOs and building resilience in digital transformation

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3 days ago

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March 24, 2023

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HBR recently released a report (sponsored by Red Hat as part of The Enterprisers Project), on the changing roles and landscapes of Chief Information Officers (CIOs) leading organizations through digital transformation. 

The goal? Resilience. 

Specifically, resilience in an organization’s people, business processes, and tech infrastructure. 

But don’t get too caught up in the tech just yet. As UC Dublin business professor Joe Peppard is quoted in the report, “digital transformation is less a technology challenge and more a leadership one.”

HBR shares how CIOs can step up to the plate with leadership that fosters resilience amidst digital transformation:

Adaptability for CIOs and the organizations they lead

Digital transformation is a response to change, whether that change is innovation, customer demands, or industry trends. Today’s CIO must prepare their organizations to adapt to those changes, specifically: 

  • Adapt new processes to speed up product development
  • Collaborate to create new business models
  • Respond faster to client demands
  • Experiment and pivot quickly
  • Attract and retain IT talent

To achieve all that, the role of CIO has quickly expanded its job duties. Indeed, 89% of CIOs feel their role has become “more important,” the report found, while 88% agree their role is the most “critical component” of their organization’s sustenance. 

What do these expanded duties look like, apart from leading adaptable organizations? The CIO is an educator, coach, strategic adviser, entrepreneur, relationship builder, and change agent. HBR even includes “evangelist” in the mix. 

Managing expectations, relationships, and talent

Communication and relationship building are increasingly important, even in a tech-dominated industry. HBR cites an IDC statement that CIOs will even out inflation, shortages, and other economic changes through negotiations and relationship building. 

Of course, that communication is vital internally as well. CIOs need to lead staff, managers, and executives through pivoting plans, unpredictable results, and changing expectations. How? Through empathy, a vital component in supporting a successful organization and successful professionals within one. This also includes fostering safety, diversity, personal growth, inclusion, and autonomy for experimentation, and learning from failures. 

Finally, there comes the talent — starting at recruitment, all the way to career development and flexible work arrangements for IT staff. 

Making tech more agile

CIOs can’t do this on their own. However, they can embrace transformation tools and support their organization using them. HBR cites a PwC study on strategies for adapting to new tech tools, including: 

  • Making an IT strategy more agile
  • Using infrastructure investment to move to the cloud
  • Leveraging data and analytics to inform strategic decisions

CIOs aren’t just responsible for securing the new tech. They also need to strategically and operationally decide how to best harness each tech’s capabilities. The answer comes from the entire organization, as business operations and IT become unsiloed to support better collaboration. 

Read the full report. 

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Why aren’t more people buying their cars online?

A 2021 Carfax survey found that only 8% of buyers want to buy their next new or used car online.

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4 days ago

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March 23, 2023

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The Covid-19 pandemic drove us into quarantine and lockdowns, and if you happened to be in the market for a new or used car, you probably weren’t schlepping to a dealership to make the purchase in-person. Rather, online transactions increased, and some say that’s the direction automotive retail we’ll continue to go.

According to a study by Capital One Auto Navigator, 56 percent of car dealers stepped up their use of digital tools in response to the pandemic. A Think with Google article said 63 percent of auto purchasers would consider ordering their next car online.

Besides Tesla’s online-only sales, online car sales have been around for some time, with various outlets including Cardoor.ca, Canadadrives.ca, Clutch.ca, Carnex.ca, Carvana and Vroom. But the pandemic served “as a catalyst to accelerate this transformation,” said Jessica Stafford, Senior Vice President, Consumer Solutions, Cox Automotive.

A 2022 study from Cox revealed that 81 percent of car shoppers felt that learning about their car online “improved the overall buying experience.” That included locating a dealer, looking up prices, finding vehicle specs, financing qualifications, investigating insurance products, and more.

“Amazon has trained consumers to be accustomed to being able to order whatever they need, not considering where it came from so long as they receive it in a timeframe that suits them, the price is within their budget, and the item is returnable,” she said. “This macro trend is now influencing car purchasing behavior with consumers open to receiving their cars from somewhere beyond their local market, as long as other conditions are favorable. In fact, many consumers now expect this, and are willing to pay a premium for some of these services.”

Cox’s data reveals buyers who complete more than 50 percent of the car shopping journey online were the most satisfied among all buyers. Reinforcing this view, Vog App Developers is expecting web-based apps for car consumers to become more the norm. That’s confirmed in this piece by Semetrical, that said nearly half of consumers are using their mobile devices to research their new car. 

Unfortunately, the industry isn’t keeping up. OSF Digital reported that almost eighty per cent of dealerships’ websites lacked the functionality for proper vehicle searches, and just over five per cent had 360-view photographs of their stock.

Michael Carmichael, president and CEO of UpAuto.ca, said that though there’s a big push from auto makers and dealers to develop the online funnel, “there is very little demand. It’s the biggest solution looking for a problem.” He believes “the emotional tie to an auto purchase is reduced dramatically. People want to come to see the car themselves and they want a relationship with the seller.” 

On the one hand, the online factor “plays a big role in an educational perspective — people doing their homework, [getting] information, and lots of pictures, and detail.” 

On the other hand, however, there are too many drawbacks: “How does my child seat fit in the back? What if it’s a smoker’s car? You can return it, but who wants to go through that hassle? It’s a lot of money,” says Carmichael.  

And he may be right: according to a 2021 Carfax Canada survey, only eight percent of Canadian buyers of new or used vehicles want to buy their next vehicle online. 

One challenge he has faced is attempted digital fraud — two attempts in recent weeks — an issue he says is rampant. “There still has to be a signature, and someone has to validate that you are who you say you are,” noting that as a lingering problem with online sales. By the end of 2021, digital fraud had been twice the problem in Canada than anywhere else in the world.

Sam Lee, Carnex.ca’s finance manager, sees things differently. 

“Purchasing a vehicle online is very straightforward,” he said. “It includes the vehicle’s imperfections and often, a good return policy. “What I see is the best model would be a hybrid system,” or more of an omnichannel approach. “In-person dealerships are time-consuming with pushy salespeople.”

EpicVin has delivered vehicle history reports for car buyers and displays used cars online, while working with hundreds of dealerships. Alex Black, its Chief Marketing Officer, says that photographs of cars have improved over time, as sellers have become more marketing savvy. 

“Nowadays, using the VR technologies, one can even create a model of a perfect car and to order it. So we can definitely say that the world of technologies introduced significant changes in the online car selling process.” On this point, the US Automotive Dealership Benchmark Study saw a direct correlation of sales to VR availability.

Zach Klempf, founder and CEO of Selly Automotive, is an automotive market contributor who has been featured in CNBC, Forbes, and other outlets. 

“For the part of the industry where there is more wear and tear on the car, it gets hard to sell that entirely online,” he explained. “But if it’s a commodity like a brand new Camry or Corolla under warranty, no major incidents, there is a market for it. Some consumers go into dealerships 

and completely change their mind on the car they want to buy once they see it and physically drive it.”

But things are looking a bit shaky for the online car industry, with volatile economic factors, noted Geoff Cudd, the CEO and founder of Find the Best Car Price. “With a diminishing supply of vehicles for sale, and the highest interest rates seen in years, the average price of a car is out of reach for the typical buyer. This is hurting all dealerships, but especially the online dealerships who overpaid to acquire vehicles from customers and they are now being forced to downsize in order to stay afloat.”  

Betakit in January confirmed as such, reporting that layoffs have been increasing in the market. 

Clutch and Canada Drives recently announced staff cuts, citing poor economic conditions. A representative from Clutch blamed a variety of factors, including “rising rates, supply chain disruptions, and volatile pricing.” 

New York Times reported that Carvana took a quarterly loss of more than a half-billion dollars, and laid off four thousand staff. In the past year, used car values have dropped 20 percent, leaving dealers to offload stock for far less than they paid, according to the Times. Cox Automotive said that 2023 sales will likely be half of the year before.

It looks like in-person shopping is here to stay, at least in the foreseeable: “There is still a general resistance by dealerships to complete the entire transaction online. Most dealers still push for an in-person meeting where they are more confident that the sales process will result in additional sales of high-margin items for the dealership,” said Cudd.

The Covid-19 pandemic drove us into quarantine and lockdowns, and if you happened to be in the market for a new or used car, you probably weren’t schlepping to a dealership to make the purchase in-person. Rather, online transactions increased, and some say that’s the direction automotive retail we’ll continue to go.

According to a study by Capital One Auto Navigator, 56 percent of car dealers stepped up their use of digital tools in response to the pandemic. A Think with Google article said 63 percent of auto purchasers would consider ordering their next car online.

Besides Tesla’s online-only sales, online car sales have been around for some time, with various outlets including Cardoor.ca, Canadadrives.ca, Clutch.ca, Carnex.ca, Carvana and Vroom. But the pandemic served “as a catalyst to accelerate this transformation,” said Jessica Stafford, Senior Vice President, Consumer Solutions, Cox Automotive.

A 2022 study from Cox revealed that 81 percent of car shoppers felt that learning about their car online “improved the overall buying experience.” That included locating a dealer, looking up prices, finding vehicle specs, financing qualifications, investigating insurance products, and more.

“Amazon has trained consumers to be accustomed to being able to order whatever they need, not considering where it came from so long as they receive it in a timeframe that suits them, the price is within their budget, and the item is returnable,” she said. “This macro trend is now influencing car purchasing behavior with consumers open to receiving their cars from somewhere beyond their local market, as long as other conditions are favorable. In fact, many consumers now expect this, and are willing to pay a premium for some of these services.”

Cox’s data reveals buyers who complete more than 50 percent of the car shopping journey online were the most satisfied among all buyers. Reinforcing this view, Vog App Developers is expecting web-based apps for car consumers to become more the norm. That’s confirmed in this piece by Semetrical, that said nearly half of consumers are using their mobile devices to research their new car. 

Unfortunately, the industry isn’t keeping up. OSF Digital reported that almost eighty per cent of dealerships’ websites lacked the functionality for proper vehicle searches, and just over five per cent had 360-view photographs of their stock.

Michael Carmichael, president and CEO of UpAuto.ca, said that though there’s a big push from auto makers and dealers to develop the online funnel, “there is very little demand. It’s the biggest solution looking for a problem.” He believes “the emotional tie to an auto purchase is reduced dramatically. People want to come to see the car themselves and they want a relationship with the seller.” 

On the one hand, the online factor “plays a big role in an educational perspective — people doing their homework, [getting] information, and lots of pictures, and detail.” 

On the other hand, however, there are too many drawbacks: “How does my child seat fit in the back? What if it’s a smoker’s car? You can return it, but who wants to go through that hassle? It’s a lot of money,” says Carmichael.  

And he may be right: according to a 2021 Carfax Canada survey, only eight percent of Canadian buyers of new or used vehicles want to buy their next vehicle online. 

One challenge he has faced is attempted digital fraud — two attempts in recent weeks — an issue he says is rampant. “There still has to be a signature, and someone has to validate that you are who you say you are,” noting that as a lingering problem with online sales. By the end of 2021, digital fraud had been twice the problem in Canada than anywhere else in the world.

Sam Lee, Carnex.ca’s finance manager, sees things differently. 

“Purchasing a vehicle online is very straightforward,” he said. “It includes the vehicle’s imperfections and often, a good return policy. “What I see is the best model would be a hybrid system,” or more of an omnichannel approach. “In-person dealerships are time-consuming with pushy salespeople.”

EpicVin has delivered vehicle history reports for car buyers and displays used cars online, while working with hundreds of dealerships. Alex Black, its Chief Marketing Officer, says that photographs of cars have improved over time, as sellers have become more marketing savvy. 

“Nowadays, using the VR technologies, one can even create a model of a perfect car and to order it. So we can definitely say that the world of technologies introduced significant changes in the online car selling process.” On this point, the US Automotive Dealership Benchmark Study saw a direct correlation of sales to VR availability.

Zach Klempf, founder and CEO of Selly Automotive, is an automotive market contributor who has been featured in CNBC, Forbes, and other outlets. 

“For the part of the industry where there is more wear and tear on the car, it gets hard to sell that entirely online,” he explained. “But if it’s a commodity like a brand new Camry or Corolla under warranty, no major incidents, there is a market for it. Some consumers go into dealerships 

and completely change their mind on the car they want to buy once they see it and physically drive it.”

But things are looking a bit shaky for the online car industry, with volatile economic factors, noted Geoff Cudd, the CEO and founder of Find the Best Car Price. “With a diminishing supply of vehicles for sale, and the highest interest rates seen in years, the average price of a car is out of reach for the typical buyer. This is hurting all dealerships, but especially the online dealerships who overpaid to acquire vehicles from customers and they are now being forced to downsize in order to stay afloat.”  

Betakit in January confirmed as such, reporting that layoffs have been increasing in the market. 

Clutch and Canada Drives recently announced staff cuts, citing poor economic conditions. A representative from Clutch blamed a variety of factors, including “rising rates, supply chain disruptions, and volatile pricing.” 

New York Times reported that Carvana took a quarterly loss of more than a half-billion dollars, and laid off four thousand staff. In the past year, used car values have dropped 20 percent, leaving dealers to offload stock for far less than they paid, according to the Times. Cox Automotive said that 2023 sales will likely be half of the year before.

It looks like in-person shopping is here to stay, at least in the foreseeable: “There is still a general resistance by dealerships to complete the entire transaction online. Most dealers still push for an in-person meeting where they are more confident that the sales process will result in additional sales of high-margin items for the dealership,” said Cudd.

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