There are two major auto financial tech trends that have gained momentum in the past year that Colleen Poynton, vice president of the venture capital fund Core Innovation Capital, expects to continue into 2017 — more flexible financial deals, and financing for private party transactions.
While she didn’t want to name specific startups because some are purposely keeping a low profile, the broader problems they are looking to solve are universal.
The first is creating a financial structure that fits between renting a car and leasing a vehicle for three to five years. Historically, financial structures lock the borrower in for the length of the term or force them to pay hefty fees to get out of the structure, but there are a number of consumers that don’t need a car for that long-term time frame, Poynton told Auto Finance News.
“There might be two years in which they are a graduate student living in the city and taking public transportation or walking 90% of the time, and then they spend a year in an outlying more rural area and need a car to get around,” she explained. “So we’ve seen a few companies think about how you would structure a financing product to be more flexible, to allow people to come in and out of car ownership and car utilization in a more flexible manner.”
The second trend Poynton identifies is financing peer-to-peer sales, which CNW Research predicts will make up 31% of the used car market by 2020.
“Banks, for a very good reason, have historically not wanted to be a part of financing those transactions,” she said, noting the difficulties of managing a title, ensuring the customer won’t be defrauded, and the cost of remotely evaluating the quality of the collateral.”
However, digitized title registrations in various states are making that process easier, and there are a number of states working to implement those systems now — or have committed to do so in the future — she said. Eventually, other technologies such as computer vision — which allows computers to analyze and see objects in digital images — will automate the collateral evaluation process as well, Poynton added.
“I think we’re moving into a territory now where we’re going to see more companies try to solve that transaction fee that allows lenders to finance that transaction in a way that previously wasn’t possible,” Poynton said.