Driving customer experience: Five ways technology plays a key role in auto finance

Innovation has always been driven by the consumer as businesses aim to meet customer expectations and craft the best experience possible, and the auto finance industry is facing a period of rapid technological advancement and innovation. Vehicle manufacturers and auto lenders are racing to adapt to changing consumer preferences to grow and maintain a positive customer relationship — and technology now plays a crucial role in this effort. The global COVID-19 pandemic shifted consumer preferences to an online experience when it comes to purchasing and financing cars, accelerating the adoption of technologies such as e-signatures, digital documentation, online communication and remote car delivery. It has become crucial, therefore, for auto lenders and OEMs to let go of legacy systems and processes and improve their technology stacks. “The auto finance sector … has done a fantastic job in growing immensely on a global scale. But the customer experience has been lacking,” said Georg Bauer , co-founder of subscription service NextCar and 40-year auto finance veteran. “Technology has not found its way as much as it could have, [but] I believe it will find its way into the auto finance ecosystem from a customer experience perspective.” The Auto Finance Innovation Summit highlighted five ways technology is used to drive the customer experience within the auto finance industry. 1. From the lot to the screen The meteoric rise of online car retailers such as Carvana , Shift and Vroom has opened the door for customers to purchase a vehicle without stepping onto a dealership’s lot, an option that saw accelerated adoption due to the pandemic. Shift saw unit sales increase 147% year over year to 4,666 vehicles in 2020, leading to a 168% jump in revenue to $73.4 million, Toby Russell , co-chief executive, said during the company’s fourth-quarter earnings call. Shift's revenue was driven in part by growth in ancillary product purchases, Russell said, and the online used-vehicle retailer will continue to invest in F&I solutions. As digital car-buying grows in popularity, traditional auto lenders have expanded their online options. “Ultimately, the consumer will push the industry towards digitalization because the consumer will demand it,” Robert McDonald , general manager of auto finance for investment firm Pagaya , said during the summit. Navy Federal Credit Union , for one, in March launched a digital car-buying platform powered by online new- and used-car marketplace TrueCar . The website allows Navy Fed members to shop new and used cars and access financing options through the credit union. Navy Fed was the largest credit union in auto oustandings in 2019, with a managed portfolio of $14.5 billion, according to Big Wheels Auto Finance Data . “While consumers began exploring online car-buying services before the pandemic, we’ve seen the trend undoubtedly accelerate this year,” Joe Pendergast , vice president of consumer lending at Navy Fed, told Auto Finance News . “Car shoppers now not only want to research and purchase from the comfort of their own homes, but also complete the entire financing process digitally.” Chase Auto , too, has built a digital-first financing platform with electric vehicle manufacturer Rivian Financial Services , said Jagdeep Dayal , head of the lender’s captive finance business. “That whole experience is predominantly digital, from the entire car buying experience, to the financing, to the signing of documents,” Dayal said, noting that the pandemic has accelerated the digitization of buying and financing a car. 2. Out with the old, build the new As technology takes a more central role in customer experience, auto lenders are evaluating whether their legacy systems present roadblocks to advancement. Toyota Financial Services , for one, opted to build a new platform when the company launched the private label Mazda Financial Services in April 2020, said Kathie Holt , business information officer for lending, insurance and banking products at the captive. “When we were looking at onboarding a new private brand, we realized it would be better to implement a new platform than to try to modify some of the legacies that plagued the industry at the beginning,” Holt said, noting that the platform had to be modern, cloud-based and API-enabled so that the lender could separate back-end services from front-end, customer-facing channels, and quickly make needed changes without bogging down the whole system. Consumers want a seamless car-buying transaction, added John Castle , vice president of consumer finance at Vroom. “We do a good job of assigning a lot of homework to the customer along [the car-buying] process, which creates friction,” Castle said. “The more [the industry thinks] of car buying as a singular process, end to end, with the consumer in mind, that’s where we can really start to accelerate the adoptions." Though Vroom's platform was built for seamless digital retailing, the challenge lies in working with partners who still rely on older systems, Castle noted. “There are certainly legacy technology issues between different parties,” he said. “We’re lucky from the standpoint that we started off with a clean slate, but we’re working with large-scale partners that aren’t necessarily working with a clean slate of technology.” Dealerships that use legacy processes may also struggle to bring their financing options completely online, Chase Auto’s Dayal added. For example, to complete paperwork digitally, an F&I office employee may need to take photos of documents and manually upload them to the system, adding time and work. “The adoption is a little harder there,” he said. “I think it's going to require a rethinking of the process,” Dayal noted. 3. Hello there, partner As auto lenders reevaluate their technology stacks, fintech partnerships have taken a more prominent role in the industry, providing an efficient way for lenders to offer streamlined services to their customers, Dayal said. “You’ve got dealers, the OEM and the captive working together. You might think there are fewer players and it's a lot easier to build an ecosystem that could digitize a lot of the transaction. It's not,” Dayal said, noting that it is a challenge to bring together different technologies and legacy systems. Fintechs, Dayal noted, are able to bring the various pieces together to create a more efficient process. “It's the tech players, the fintechs — the players that can actually think about potential solutions — that really eases this ability for things to come together again on multiple platforms and capabilities,” Dayal said. When it comes to partnering with fintech companies and startups, NextCar’s Bauer said he specifically looks for technology that focuses on the customer experience, an outlook that served Bauer and NextCar co-founder Scott Painter well when the duo founded the leasing app Fair in 2016. “Where we really found common ground was on this focus on the customer. That is at the core of anything that really is going to create enterprise value,” Painter noted. Westlake Financial provided NextCar with a $400 million debt facility in December 2020, allowing the startup to purchase up to 30,000 vehicles, Painter previously told AFN . NextCar, which allows customers to pay a monthly fee to subscribe to a car, has already raised $30 million in 2021 from investors. Fintechs Car Capital Technologies , Gettacar and MotoRefi have also secured tens of millions of dollars in funding so far this year, pointing to fintech companies’ growing significance in the auto finance industry. Car Capital Technologies secured $25 million in funding to develop its proprietary web-based platform, which provides tools like automated instant approvals for the company’s dealer partners to sell vehicles. Gettacar, an online used-car purchase platform founded in 2018, allows users to quickly shop for a car, obtain financing, and have the vehicle delivered as early as the next day. The startup raised $25 million this year, bringing its total funding to $48 million. Meanwhile, refinance fintech MotoRefi has raised $10 million this year, and more than $20 million since its founding in 2017. The company uses a digital application and approval process to quickly match consumers wishing to refinance their auto loan with applicable lenders. MotoRefi facilitated more than $250 million in auto refinance loans in 2020. 4. Connecting online, anytime Technology integration has touched every aspect of car buying, including how financiers connect with consumers. The pandemic forced many companies to move to work-from home setups, and led auto financiers to step up their remote communication capabilities amid increased use of phone, email, and online chat. GM Financial , for one, is working with technology provider Genesys to implement the lender’s call center as a service platform, giving a voice to its artificial intelligence-powered chatbot, Nanci, the captive’s Executive Vice President and Chief Experience Officer Bob Beatty said during the summit. GM Financial launched Nanci, which is powered by IBM Watson technology, in late 2019 to handle customer questions, with the goal of shifting 50% of customer interactions to messaging channels rather than by phone, Beatty said. A further goal was for Nanci to handle at least half of the online customer messages. By mid-April 2020, Nanci was handling more than 50% of customer messages amid the pandemic, an outcome that continues today, Beatty added. Nanci allows customers to get automatic answers anytime they need, including in the middle of the night, Beatty said. At the height of the pandemic, Nanci became even more crucial as customer service inquiries mounted and GM Financial employees had to work remotely, he added. “We deployed everyone home, and we didn’t have enough phone agents, so we had to channel everything through messaging,” he said. “Then, we didn’t have enough messaging agents that were trained in messaging — but we had Nanci.” Auto finance companies are likely to continue investing in online communication platforms as work-from-home and hybrid setups will stay for the foreseeable future. GM Financial surveyed team members and found that most wanted to work from home at least part time, Beatty said. “I think it would be pretty disingenuous of any company, after the pandemic, to say ‘back to work, this is the only place that you can work’ when their team members have proven over the last year that they can meet the expectations in their home office,” he added. 5. Bring on the data Technology has not only changed the way consumers shop and finance cars, but advancements in data analytics have also transformed how auto lenders evaluate potential customers. Tricolor Auto Acceptance , for example, uses more than 100 non-conventional data points collected from thin- and no-file applicants to identify patterns among performing borrowers in the lender’s portfolio and drive lead generations for potential buyers, Chief Executive Daniel Chu said at the summit. “We input [those data points] into our decisioning engine and, using artificial intelligence, we can identify matches in those patterns of nontraditional attributes that correlate with borrowers in our portfolio that have performed, and we can present offers to the customer,” Chu said. The Dallas-based subprime lender has also seen a 17% increase in conversion rates at dealerships due to its artificial intelligence-powered point-of-sale software, which allows customers to customize their financing structure online, Chu said. “It allows the customer to plan a customized set of financing terms that meet their needs, on a vehicle that they desire,” Chu said. Tricolor has originated more than $1 billion in auto loans to thin-and no-file Hispanic borrowers, and had a managed portfolio of about $400 million in September 2020. *** Consumer preferences will likely continue to drive technological advancements in the auto finance industry. “When I think about the advancements that are really going to be impactful to the industry,” Vroom’s Castle said, “it’s those that drive a much more streamlined experience for the consumer, but then are also connected to significant scale advantages for all the different parties involved in the backend — whether that be dealers, OEMs, lenders, and all of the ancillary partners that fulfill that end-to-end transaction.” Auto manufacturers and lenders can also build loyalty by factoring in both the emotional and practical aspects of the car-buying experience, and offering an omnichannel approach, Chu said. “It's those rapidly changing customer expectations that we often think about, in terms of how to shape our own approach in automotive and finance,” he said. “It's our view that the winners that we will see in automotive finance will embrace the idea that the customer journey needs to be responsive to [consumers’] needs and their feelings,” Chu added. “Auto is uniquely positioned to ... deliver an experience that makes customers feel special, understood and validated." Marcie Belles contributed to this report. Auto Finance Risk Summit, the premier event for risk and compliance in auto finance, returns May 11-12, 2021 as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceRiskSummit.com .

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