A peek at the future of direct-to-consumer auto lending

This is the first in a four-part series taking a deep dive into the challenges and opportunities of consumer auto financing for lenders, dealers and consumers.

Are lenders ready for a digital transformation? Their customers are.

During the last decade, the Silicon Valley giants have transformed what it means to be a customer. E-commerce has conditioned consumers to expect unmatched convenience and endless choice. If Amazon can deliver instant gratification on a $15 widget, why can’t consumers be wowed when it’s time to buy a new car? After all, it’s the second-largest purchase most will make.

So, when was the last time anyone was wowed when buying a car? Most drivers feel the process is an experience to be endured, not celebrated. Buying and financing a car today is pretty much the same experience as it has been for generations: paper-based, manual and — when it comes to financing — a complete mystery.

In 2020, digital evolution and millennial buying power is driving change — a change being accelerated by COVID-19.

Even before the pandemic, digital was becoming the primary purchasing channel for consumers. But the shift to digital is just the start; the entire automotive industry is facing major changes across all fronts — from driverless vehicles to ride-sharing. And sure as night follows day, the digital transformation is making its presence felt in auto lending.

The way consumers buy, own and pay for vehicles is being dramatically reshaped. And it’s the consumer who is driving that change, with dramatic implications for lenders and dealers.

The power has shifted to the consumer, who is now able to compare financing rates online through aggregators, resulting in increased transparency and competition.

Disruptive start-ups are beginning to make their presence felt, with Carvana being one example. Serving nearly 70% of the U.S. population, the dealer’s eye-catching “car vending machines” are hard to miss. Carvana sets consumers up with a used car, provides financing and delivers it to their
front door. It’s a dealership, bank and a delivery service in one. That’s a game-changer.

So, what does the future look like for lenders, dealers and consumers?

The move to digital technology offers a huge opportunity for both lenders and dealers to address traditional customer pain points and provide a seamless, customer-first experience. For example, evidence suggests that giving customers the necessary information at home to make informed financing decisions increases their spend on a new car.

Dealers and lenders are entangled in a complex business relationship, so considerable collaboration will be required to transform the car-buying experience. Both dealers and lenders must strive to innovate if they are going to hold on to their competitive advantage and hold off emerging disruptors.

With bold vision, aligned partners and digital technology, buying a car can become a straightforward, consumer-friendly process that builds in customer delight and secures brand loyalty for the long term.

Bryan Smith is head of customer growth and strategic partnerships at Inovatec Systems. JAVELIN by Inovatec is a modular lending platform that helps lenders drive efficiencies through automation, while only paying for deals that are booked.