Some millennials may not have checking accounts or desktop computers, but the vast majority have smartphones, and many of them can be motivated to pay on time using innovative approaches like “gamifying” payments, experts said.
“They may change their address and not update the email, but they have the smartphones,” said Michael Collins, senior vice president of lending and F&I solutions at Dealertrack, during the recent Used Car Week conference in Scottsdale, Ariz.
More millennials get approved for car loans, “maybe with terms as long as my arm, but they get a ‘yes’ from somebody,” he said. The number of unique subprime auto loan applications submitted by millennials reached 175,000 in July compared with about 75,000 in July 2011. About two-thirds of those applications get approved, according to Dealertrack. And while it’s increasingly common for lenders to tweet or text their customers, Max Haynes, founder and chief executive of CarLoans Inc., said texting is already old technology.
“If texting is your future, you might need to be thinking about stuff that’s more innovative,” Haynes said at the Auto Finance Summit 2015 in October.
“The future is in push notifications and engagement,” or gamification, he said.
Reno, Nev.-based CarLoans Inc. is the first auto lender to adapt PaySwag, an app that gamifies payments and precollection processes, and offers rewards for timely payments. “Positive reinforcement is key here, and it works,” Haynes told Auto Finance News. The app is intended mainly for underbanked customers to make and adjust online payments, among other functions. As opposed to traditional rewards, such as trimming interest rates in return for timely payments, PaySwag rewards borrowers through mobile games with prizes like Starbucks lattes.
“There is a lot to be said about affinity and customer satisfaction, and these are not terms that are thrown around in deep subprime,” Joel Kennedy, chief performance officer at Pelican Auto Finance, told AFN. “I think for people like me, who look at things traditionally, [gamification] represents an opportunity to look at stuff with a really fresh set of eyes, because the things that customers see of value, are not things that would normally attract me.”
Companies that operate in subprime, Kennedy said, are usually focused on controlling losses, rather than on bettering customer service. “I think that these two are intrinsically tied, if we crack the nut in getting the customers to do things that are ultimately beneficial to them.” At the time of the interview, Kennedy said Pelican was in early conversations to adapt the PaySwag platform.
When it comes to payments and collections, “there are no rules, as long as you stay on the legal side,” Paul Schaus, chief executive and founder of Phoenix-based consulting firm CCG Catalyst, told AFN. “If it gets somebody to pay the bill, then let’s go for it.” The cost of collections, originations, and servicing can turn a profitable loan into an unprofitable one. “The margins are thin right now, and if apps create self-service, that’s an opportunity to cut cost,” Schaus said. However, he added that it’s easy to overspend on tech. “Don’t buy the sizzle, go after what’s going to work for you.”
This story originally appeared in Auto Finance News December issue. Subscribe to receive more exclusive stories in your mail.