As the finance industry pushes toward real-time pricing, banks are adopting analytical tools, such as machine learning and artificial intelligence, to get ahead of the competition.
Lender revenue and growth are boosted when the time to determine a loan rate is cut and the price is pushed out to market quickly. This was the topic of discussion during a Monday webinar featuring U.S. Bank and Earnix, a software provider for pricing and rates. “There’s pricing and making sure you’re pricing right … but something that is becoming far, far, far more important is the process of actually getting that price out into the market,” said Peter Reynolds, Earnix head of global banking.
Meanwhile, U.S. Bank upgraded its pricing workflow, a once manual process bogged down by thousands of rate points distinct to each state, to an algorithm-based rate change process a couple of years ago, said Ryan Potts, director of pricing and profitability for dealer services at U.S. Bank.
“We [used to] add as much as 2,000 rate cells on a rate sheet; we had 50 states with different rates, which means that we’re managing 100,000 different rate possibilities,” Potts said. “In order to squeeze out the most benefit from your pricing, you’re going to need to move to this type of pricing of a machine learning algorithm-based approach,” he said, or risk sacrificing the level of granularity.
Now, U.S. Bank analyzes rates based on application factors, incorporating competitor rates at the time. With those inputs, the algorithm generates what rates should be in all 100,000 cells “in a very short amount of time,” Potts said, and the bank goes live with those rates the following day.
According to Potts, especially in the prime and super prime space, “being able to fight for just an additional basis point or an additional two to three basis points … when you’re talking about $8 to $9 billion worth of originations, which is what U.S. Bank does, it’s still significant income over the course of the life of those loans.” As much as 50% of U.S. Bank’s auto origination volume is 800-plus Fico, and only about 4% of originations are in the near prime space, he added.
“There’s a huge benefit to reducing that time that it takes to get a price to market,” added Will Ely, an Earnix auto lending professional services consultant. “Moving even from weeks to days offers a tremendous benefit in terms of being able to stay abreast of your competitors, but also manage shifting economic indicators or perhaps the rates from Treasury.”
For more content like this, join us at the upcoming Auto Finance Innovation Summit, March 10-11 at the Omni San Diego. Register before Friday, January 31st to save with early registration rates. Visit www.AutoFinanceInnovation.com to learn more.
