From the July issue: As questions around the digital customer experience dominate industry conversations, lenders are realizing the value — and hurdles — of investing in such advancements.
Lenders seek to deliver optimal digital interactions, and as they pour money, time, and resources into developing that online experience, consumers get one step closer to a frictionless car-buying and servicing experience. Yet, not all lenders have the ability or drive to change, according to Honcker Founder and Chief Executive Nathan Hecht. “The legacy lenders and captive lenders are going to pay attention to what they’ve always paid attention to, and that’s lending to everyone,” he said. But as more millennials come into the market for cars, “they’re going to expect to have something that was built for them that is relatable and works in the way that they want it to work,” he added.
Lenders that fail to adapt to the changing industry risk losing the future marketshare of consumers who have grown to expect such digital experiences. “Look at Sears,” Hecht said. “Lenders who don’t change, risk being alienated.”
Online portals, mobile apps, text messaging communications, live online chats, and online billing are permeating the auto finance industry, and these moves into the online world are beginning to draw in the next car-buying generation — millennials. The question remains: How much are these investments being used, and how effective are they?
When it comes to the “Amazon effect” — catering to the “want it all, want it now” demographic — millennials are the most underserved, according to Hecht. “The automotive industry as a whole is probably not in touch with the millennial needs as much as other industries are, and there’s work to be done there in focusing on the millennials,” he said.
Is having an online portal enough to cater to a generation that grew up with easy accessibility to the internet? Does offering loan education programs meet young consumers’ desires to understand their auto loans? And once lenders develop these digital tools, how do they get younger generations to use them, let alone be aware they exist?
Discovering the disconnect
J.D. Power’s Consumer Financing Satisfaction Study published in November 2018 showed that customer expectations are changing as technology evolves.
The report found the digital experience — both website and app — is important to customers, and utilization of such sources is highest among customers 40 years and younger. Despite higher usage levels, though, younger consumers are less satisfied with these digital channels when compared with those older than 40.
Conversely, the report showed that digital billing statements via website, mobile app, and text notification have high satisfaction rates but low utilization compared with traditional paper bills. Though digital statements are most widely used among younger consumers, the under-40 demographic is less satisfied with them than their older peers.
Report author James Houston said the low satisfaction rates are a result of differing generational expectations. “The younger generation is comparing their digital experience with the entire digital experience that they have, so my payment process with this lender is very different than my payment process with this different entity,” he said.
Having an online presence is not enough. “Many [lenders] have built a nice process, but it’s not as easy to use,” Houston said. The report also showed that 70% of younger consumers use self-service channels and website features, compared with 53% of older consumers, according to the report. For app usage, younger people outpace older consumers nearly three-to-one.
However, for the 42% of customers who use traditional communication channels to interact with their finance provider, satisfaction is lower, averaging 833 on a 1,000-point scale, versus 855 for those who communicate online. “Informational features such as the ability to view their contract, vehicle service offers, and setup management of alerts have a large impact on satisfaction when used — but they are underutilized,” the report said. A graph showing the satisfaction impact and usage frequency of website features highlighted that online chat, copies of contracts, and email customer service were other features that increased satisfaction levels but had low usage.
The J.D. Power report culminates with one primary question: How do you get younger people to use services that make the online lending experience
Getting it right
Auto Finance News surveyed millennials to find out what’s most important to them and what they prefer when it comes to digital servicing techniques. Turns out, millennial consumers want basic information about their auto loans, and that’s about it. They rated finding payment due dates easily and viewing outstanding balances as 4.30 and 4.26, respectively, on a 5-point scale. Other features, like viewing trade-in or refinance options, rated in the high-2-point range.
Online consumer education programs — a feature offered on nearly every auto loan website — were rated the least important at 2.35. Overall, 80% of respondents manage their auto loans online.
Lenders, dealers, and manufacturers are listening to what consumers want in their auto finance experience, CarFinance VP of Business Development Bill Nemecek said, noting that industry players are keeping a watchful eye on the space. “It’s very evident that either through third-party partnerships, development of in-house technology, or both, lenders are looking for ways to connect the way younger people want to be connected,” he said.
And it’s easier said than done. “It’s a very tall order,” Hecht said, because for the most part, lenders are dealing with legacy systems. “They were built a long time ago and are geared to do business a certain way,” he added.
One particular opportunity J.D. Power’s Houston pointed to was mobile apps. He noted that some lenders today, on the captive side especially, are exploring different mobile uses for lease and loan servicing, particularly looking at the use of a self-inspection for vehicles coming off lease. He predicted most auto lenders will have a mobile app within two to four years. “It’s not a case of [big banks] not thinking or strategizing, they’re just a little slower to the game,” Houston said. In the past, mobile apps were seen as a way to make a payment. Now, the message for lenders is: “Beyond just the servicing of the account, what other information can you convey to that customer?” he said.
Customers using auto finance mobile apps have “high overall satisfaction” — 874 on J.D. Power’s 1,000-point scale — but customer use is limited to monthly transactions. Bill-pay scheduling, vehicle information, and a payoff calculator were the most desired auto finance mobile app features, according to the study.
Investing in customers’ digital experiences and providing the desired information and features is a sizable investment. “From an efficiency perspective, investments are relatively high, but they will pay off in the long run,” Houston said.