The rise of vehicle subscription services is being hailed as a boon for commitment-phobic Americans — millennials in particular — who want a vehicle without the burden of ownership.
Yet for “thin” credit bureau files — near prime and subprime consumers — the subscription model offers more than a lifestyle upgrade, it can provide a lifeline. These consumers can get access to a reliable form of transportation without high-interest rates and a burdensome down payment. In fact, they can get behind the wheel with little more than a credit card, a driver’s license and proof that they can make their monthly payments.
Subscription services that target the cost-conscious consumer also offer a win for dealers and lessors who are nervously eyeing the coming peak in off-lease car volume. A percentage of these vehicles can be channeled into a subscription services fleet, relieving some of the pressure on new and used vehicle prices. This can continue to move inventory and subscription operators can expand the list of choices available to subscribers.
But what happens when subscribers stop making payments? Even though subscribers do not own the vehicles, subscription operators must still comply with state and federal law regarding collections and repossession. When the next economic downturn hits, subprime and near-prime consumers will be among the first to falter. Signs of a market contraction have already surfaced. Subscription operators need to be ready with scalable strategies to manage delinquencies and repossession.
When it comes to a tough economy, the risk for operators isn’t just the loss of a monthly payment.
A rise in subscriber defaults could create a compliance minefield for operators. There is also the prospect that the collateral can simply disappear without the right processes, platforms, and staff in place to track inventory. And then there are the expenses related to collections and liquidation. The average cost to repossess a vehicle ranges between $400 and $700, to say nothing of the administrative costs that precede that step.
The key is to automate as much of these processes as possible, starting with:
- Bankruptcy monitoring – Instead of learning that a subscriber has declared bankruptcy during a collections call, subscription operators can automatically check the status of borrowers daily.
- Events monitoring – Rather than manually search through docket events every day for relevant information, subscription operators can receive notifications when it is time to act.
- Repossession – Integration with repo agencies’ systems saves subscription operators the cost and time required to manually track and manage each repo.
- Servicemembers Civil Relief Act – Subscription operators can automatically confirm that an individual is not deployed on active duty before assigning for repossession.
Automation can set up guide rails to ensure staff is in compliance with all applicable laws. It also helps to improve the chances of recovery by reducing human error, missed dates, and improper filings.
Moreover, automation delivers tremendous cost savings. Every manual touchpoint adds costs to the transaction – and delinquency processing and repossessions are both resource-intensive. Every opportunity to hold down costs is an opportunity to pass on cost-savings and build loyalty with paying subscribers.
The rub, of course, is the cost of building out the infrastructure, particularly now, in the relative infancy of the subscription model. The good news for operators is that they don’t need to. By tapping into business process outsourcing (BPO), they can outsource back-office functions, including delinquency processing and repossessions, rather than invest their capital in systems, processes, and payroll.
The benefits for subscription operators include:
- Improved compliance – By working with an experienced partner, subscription operators do not need to be the experts in delinquency and repossession laws across multiple jurisdictions.
- Scalability – Subscription operators can manage peaks and dips in the delinquency cycle without having to expand or contract their staff levels.
- Cost savings – Operators can gain all of the benefits of automation without needing to invest in the infrastructure; they can then pass that cost-savings on to their subscribers.
To fully optimize operations, subscription operators should look to partner with a solutions provider that understands both vehicle subscription services and the state and federal compliance hurdles—and pitfalls—that are unique to the vehicle lending industry.
The subscription services model is built on the promise of flexibility for subscribers. Outsourcing back-office functions is a natural fit. Subscription operators can fill their staffing gap with the resources they need when they need it, so they can focus their attention on shaping this new frontier.
Brandy Bissett serves as the business process outsourcing product manager of Fiserv Lending Solutions.
Jeff Hanna is the product manager at Fiserv. Disclosure: This is a personal blog and does not necessarily reflect official views or opinions of my employer, Fiserv, Inc.