Black Friday and the holidays are now behind us, and lenders are facing 2022 hopefully less encumbered by the restrictions of the past two years. However, the drive toward online shopping that accelerated during the pandemic has permanently changed the landscape. Consider that online purchases in general reached $8.9 billion on Black Friday, well above pre-pandemic levels.
Automotive sales haven’t escaped this dynamic. Digital sales of vehicles have become a significant revenue stream, especially as millennials emerge as a larger car-buying group than their baby boomer predecessors, and they’re twice as likely to skip the showroom entirely and buy vehicles online — new or used.
So, what does this mean to lenders, and how can they fortify their ecommerce offering in order to remain competitive in a digital-heavy shopping environment? The drive to gain a competitive edge is compounded by the fact that inventory is still limited for dealerships and interest rates remain low, a double-whammy that will likely extend into 2022. It’s led consumers to sign contracts for vehicles weeks before they’re even due to arrive.
This unique environment opens a window where lenders have more opportunities to compete based on their own services as opposed to solely being a conduit for the dealership. It means lenders have more to gain by committing to a robust loan origination system (LOS) and advanced automation solutions that offer streamlined onboarding, fast decisioning and friction-less customer experiences through an online platform.
In addition, all-digital dealers such as Autotrader, Carvana, Vroom and other alternative sources of business have been pushed into the spotlight with the shift to online services. Sophisticated LOS systems can connect lenders to these platforms to gain a share of buyers as these venues continue to capitalize on that momentum. Many of these destinations offer comparison-shopping tools that refer consumers to web-based financing companies. Lenders need powerful tools that allow them to differentiate their customer experience and emerge as the winning provider in these environments.
Everyone wants expedience
The difference between closing a deal and losing it comes down to the ability to offer speed and accuracy in the engagement experience — all attributes that can be improved with the right technology.
The No. 1 reason why consumers shop for vehicles online is because it’s expedient, according to Kelley Blue Book. Where shoppers once researched their purchases online and then headed to a dealership, many buyers have shifted to staying online for the entire transaction. Millennials in particular are rejecting the showroom floor experience, which typically entails hours of negotiations, consultations with different managers, considerable paperwork and long waits for approvals.
Sophisticated LOS solutions have artificial intelligence-powered processes that expedite income verification and reduce risk for the lender while also reducing labor on the part of the lender. The result is near-instant approvals, compared to the time investment of a dealership visit.
The best financing tools win
The Blue Book survey identified one of the main advantages consumers find in online car shopping: Buying online lets them choose the best financing tools as opposed to being limited to an individual dealership’s tools. This underscores how critical it is to be that lender with the “best tools.”
For banks, credit unions and other lenders, this means turning to online refinancing solutions to increase profits despite the unprecedented lack of inventory. Yet, vehicle owners are being bombarded with refinancing offers because it represents a revenue stream that doesn’t even involve a physical sale. Lenders are forced to compete based on their ability to provide faster, more effective loan originations online. Technologies exist that allow customers to refinance their auto loans literally in just a few mouse clicks.
For captive lenders and dealer groups, loan applications still offer greater expediency since they can be completed on the showroom floor through the lender’s website. Many dealerships adopted automated technology to offer online document signing and touchless application processes for safety reasons. Yet after being forced to move much of their financing processes online, dealerships are still gaining benefits from having embraced this automation.
Similarly, for indirect lenders, plugging into digital marketplaces provides greater accuracy, reduced risk, less human interaction, a faster customer experience and greater customer satisfaction. All this lends itself to higher sales volumes.
Lenders can take advantage of a unique window to dominate online sales today through robust LOS technology. And when the economy rebounds and inventory begins to return, lenders who have invested in technology that creates efficiencies will be even better positioned to compete in an ever-changing market, meeting pent-up demand.
Vlad Kovacevic is the founder and chief executive of Inovatec Systems. Inovatec provides modern and innovative LOS, LMS and Direct systems that eliminate friction in the lending process and automate much of the manual work of originating and managing loans.