Weekly Wrap: Credit union trends and the risk of complex tech stacks

Last week, the Auto Finance News team examined credit union trends in auto finance and attended the 2021 FinovateFall , the latter of which highlighted a handful of promising startups . Credit unions have kept underwriting criteria tight as they look to artificial intelligence and automation to grow their refinance volume , even as most major banks loosened their underwriting guidelines last quarter. Meanwhile, as financiers look to optimize their technologies and upgrade their systems, the financial services industry is on the cusp of sweeping change that will complicate tech stacks, JPMorgan Chase ’s head of fintech Jeremy Balkin said at the conference last week. A “platforms platform,” as he calls it, is a platform that combines multiple other platforms together and will likely be the next tech-based business paradigm. For example, Uber combines a payments platform, a navigation platform and a messaging platform all into one. Auto financiers have strived in recent years to update their technology stacks through new partnerships, but the interconnectedness of technologies from different suppliers poses a new risk to lenders, Toyota Financial Services’ Chief Information Officer Vipin Gupta previously told AFN. “Digital adoption has now created a supply chain and interdependencies between our partners. When we used to think about risk before, we used to think about what we call third-party risk — our software provider, cloud provider or hardware provider,” Gupta said in July. “Now, you think about fourth-party and fifth-party [risk], which is the suppliers to those suppliers.” In this episode of the Weekly Wrap, Associate Editors Amanda Harris, Whitney McDonald, and Editor Joey Pizzolato discuss last week’s top stories and what’s to come in the week ahead. Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Auto Finance Summit, the premier industry event, returns October 27-29 in Las Vegas. The Summit continues to bring together the best and brightest in the industry year after year for unparalleled networking and professional education. To learn more about the 2021 event and register, visit www.AutoFinanceSummit.com . Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . Amanda Harris 00:02 Hello everyone and welcome to the roadmap from auto finance news since 1996, a nation's leading newsletter on automotive lending and leasing. It's Monday, September 20. And I'm Amanda Harris, Associate Editor of auto finance news. I'm joined today by my fellow associate editor Whitney McDonald and our editor Joey Pizzolato. This is our weekly wrap on what happened auto finance for the week ending September 17 2021. Before we start, as always, I want to thank auto finance these advertisers: Alfa, defi Solutions, Equifax and Wolters Kluwer for the continuing support. At first in some general automotive news Sunil Paul Mata is one of the pioneers of the ride sharing concept has launched spring free Evie a FinTech focused on tackling the high upfront costs of electric vehicles. So spring freeze approach of opera of offering financing and charging a fee per mile of use, aims to make costs for EBS, either equal to or lower than traditional gas cars. The business contracts with electric car manufacturers such as Tesla and Nissan Motor Company to acquire a V's in bulk then they supply them to small and medium sized fleet managers who pay based on the mileage purchase agreement is definitely an interesting concept coming into the EDI market. Also auto production projections to are something to keep an eye on amid ongoing tip shortage. The forecaster IHS market this week, slashed his production forecast for this year by 6.2%. For about 5 million vehicles, they also lower the projection for next year by 9.3% or 8.4 million cars and trucks. This is the largest single adjustment to the outlook in the past nine months. At the same time, production at us factories, which was hindered by Hurricane Ida was projected to rise less than forecast in August by just point 2%. So inventory is definitely something that is still high concern in the industry. Turning to vehicle finance, this week painted a picture of how credit unions are dealing with current market conditions. So Whitney, I know you had some talks with some some protein groups this week. So what were some of the takeaways from your discussions?Whitney McDonald 02:16 Yes, last week, we were able to take a credit union pulse, we saw some trends that were in line with the industry and other you others unique to the credit union. So one thing that we saw kind of that was opposite of the rest of the industry is credit unions are continuing to tighten underwriting standards. So just kind of as COVID continues to present risks, unknown things going on in the market. And especially as stimulus checks kind of run out, credit unions are continuing to keep up a guard just kind of preparing for those payments not be so easily made by consumers. On the other hand, those high those stimulus checks have allowed consumers to make payments. And as those stimulus checks have helped them make payments. We've seen higher FICO scores, which have led to good things for consumers, including on the ability to refinance their vehicles. So not only do they want to refinance the vehicles, but they're able to so in the second quarter of this year, credit union saw sycho scores up to 741, which is higher than the industry standard. So that spike and revamp finance has led to kind of an industry trend that we have been seeing. So credit unions are kind of similarly wanting to increase technologies. So as consumers want to refinance, they're looking into more technological advancements that will allow for more simplified advancement, to allow those refinancing so not having to them all manually, but kind of leaning on the AI and automation that we're seeing in the rest of the industry. And then one thing interesting that we heard in our interview last week with you directs chief revenue officer was this is going to be a continued trend, and that it's not going to happen overnight. And some credit unions are going to be quicker than others. But even if it's just as little as adopting a sign or like this and adopting advanced refinancing technology, we're going to be seeing it continued, and there's going to be a consumer demand. People want more online options. So we're seeing that from credit unions, and we're going to continue following them. Amanda Harris 04:30 Great, perfect. We appreciate that update on credit unions definitely an area that will keep falling for sure. And also this week, Joe, you attended the US innovate conference. So what were some of the trends and updates as stood out from you, from your time there? Joey Pizzolato 04:46 Yeah, I mean, I think it intersects really well with what Whitney was just talking about. You know, one thing that struck me at the conference was JP Morgan's head of FinTech said that, you know, kind of the next big paradigm in financial services is really like the platform's platform. And he pointed at Uber as like a prime example of that. And what a platforms platform is, is just the intersecting of a bunch of different platforms, right? If you think about Uber, and I'm just paraphrasing him here, right? That's, that's a, you know, a map platform and a messaging platform, and then a payments platform all rolled into one to provide a specific service, you know, in this case, it would be ride sharing. And he's of the opinion, that's kind of where, you know, like FinTech and financial services is headed and, you know, I only sat in on on the demos for a single day, I saw I miss about half of them, but out of the 35 demos that I saw, that was kind of, you know, that asterik, behind all of them right there, they're all looking to interconnect, like the different portions of like the banking experience, like the financing experience, whether it be you know, autos, or personal loans, or even investment technology, they're all leaning on AI automation, and some form of like API connectivity, or other ways to connect these different stacks to, you know, build a better experience for the consumer one, but also to, you know, increased bank's ability to and lenders ability really, to market their products and services more directly to consumers that are actually a qualified for them. So this, this went all across across the board. And, you know, one thing it kind of, you know, struck me was, you know, and I believe, a couple months ago, I think in June or July, you spoke with Toyota financial services CIO, VIP, and, and immediately, one thing I was thinking about was, like, the inherent risks that this poses, right, as you stack technology, upon technology, it's on lenders to kind of make sure you know, they don't just have one provider anymore, to, to worry about, right, and they have to worry about their providers provider in this brand new supply chain, that's been created by these tech stacks. So I think, as we, you know, continue to see, like the industry evolve with with new technologies and increased automation and increased reliance on artificial intelligence and alternative data, lenders are really going to have to be, they're gonna have to exercise their due diligence a lot more when thinking about these new partnerships. Amanda Harris 07:27 Yeah, that's come up in a couple of different conversations I've had recently, going back, I think it was in June, talked with dip and Gupta, a TFS. And he called it you know, fourth party and fifth party risks now. So you always think of like your first party yourselves. And then third party is pretty normal in the industry too. But if you're keep adding more players, you do have to kind of think about making sure that you know, the fintechs, that you partner with, that they're doing things the right way that came up recently, in a compliance conversation, I had to have, you know, as more and more of these partnerships are formed, it's, you know, it's going to end of the day, it's going to be on the lender to make sure that everything that they are doing is in compliance, because the regulators are going to come to them more than they would come to like a third party that they're working with. There are some cases where it might be that the vendors been messing up for a while, and it's impacting multiple lenders. And in that case, they might bear the brunt of that responsibility. But for the most part, it's going to be on the lenders. So even if it's something you're doing through a vendor through someone else, it really is going to be on you to make sure that they're still doing things that are in line with the same, you know, regulations that you will be held to as the lender, because it's getting the day you're going to be the one getting in trouble if something is off. So definitely a kind of, to be sure. Something to think about as more of these partnerships form. And companies want to do more new things that they haven't really been doing in the past. So Joey Pizzolato 09:00 right. And I think that hints really nicely Whitney's story, and that's going to be coming later today about you know, disparate impact with with auto dealers and really like the buck stops always with auto lenders. And I mean, at the end of the day, no matter what regulation you're talking about. It always stops with auto lender, so so like, like you mentioned, you know, it's definitely top of mind for the industry right now. And it's top of mind for us to clearly. Amanda Harris 09:31 Absolutely great. We kind of poke a little bit about what we have coming this week. We also have some more exciting powersports news to come. And some more updates from dealerships, and I look at vehicle price trends. So make sure you stay tuned this week for those stories. And as a reminder, that auto finance summit returns October 27 through 29th in Las Vegas. We're really excited to bring that back this year. Have a really great speaker faculty lined up lots of great topics too. very timely. So and then we've been talking about last couple of weeks, I'll get more in depth coverage there. So make sure you check out auto finance summit calm to learn more and to register. And as always, I want to hear from you. You can rate the roadmap on whatever platform you use to listen to this podcast. And follow us on Twitter and LinkedIn. Thank you for joining us on another episode of the roadmap. We'll see you online at auto finance news dotnet in here next time

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