For the auto finance industry, the challenge is clear: a deluge of technology change is coming, and lenders need to take action to in order not to be shut out of the competition.
Lenders, dealers and manufacturers need to think about mobile payment technology and how they plan to integrate their systems, what shoppers want in their experiences whether it be in store on their phone, as well as high-level technologies to improve underwriting and prevent fraud.
Here are seven innovation ideas for 2018:
Financial institutions like Bank of America, Chase Auto Finance, and PNC Bank have begun using biometrics in the past few years as a way to prevent fraud.
“Fingerprint ID was the No. 1 requested feature from mobile users before we introduced it,” Betty Riess, a Bank of America spokeswoman, said in a published report. But there’s more biometrics than just fingerprints, there’s also voice and facial recognition. These last two have seen an increase in awareness with the rise of digital personal assistants, and the new iPhoneX which unlocks when its owner shows his or her face directly at the screen. How long until auto lenders and captives catch on?
2. Machine learning
Ford Motor Credit Co. made a big splash this year when it conducted a study with fintech startup ZestFinance that measured the effectiveness of machine learning to better predict risk. Machine learning is a type of artificial intelligence that allows the technology to learn on its own without manual input. ZestFinance is working with several other OEMs and lenders, Douglas Merrill, founder and chief executive of ZestFinance, told Auto Finance News in March.
Many lenders hopped on the e-contracting bandwagon this year, including Mercedes-Benz Financial Services, Westlake Financial Services, TCF Bank, and several more. E-Contracting has the added benefit of improving dealer relationships and increasing the ability to close a deal by making the paperwork easier for customers.
For MBFS, the motivation was also to improve dealer relationships, since the captive is intent on “learning new ways” to bring additional products and services to support its dealer network, Vice President Geoff Robinson told AFN.
Meanwhile, Westlake has noticed the impact it has on originations and customer service, with its high rate of adoption. “E-contracted deals now make up about 20% of our monthly originations,” Mark Vazquez, senior vice president of sales and marketing, said in a press release. “We should see this ratio increase now that we have launched the solution nationwide.”
4. Car Subscriptions
This past year could easily be declared the “Year of the Car Subscriptions” where Cadillac, Ford, Porsche, Volvo, Lincoln, and newcomer Lynk & Co. all established their own subscription services in one way or another.
And the rise in leasing only supports the idea that a subscription — especially those with bundled maintenance, insurance, and other payments together — will also be popular. Especially with young people more familiar with the world of subscriptions. According to an Edmunds’ analysis of car registration data, leasing accounted for 28.9% of all new car purchases by millennials in 2015.
5. Mobile Payments
According to a 2015 study by Deloitte Consulting, 34% of 18– to 34-year-olds are interested in using mobile payments, along with 20% of 55- 75-year-olds. But there’s a significant barrier to entry for users, which is that there are many companies that still don’t offer mobile bill payment.
Ally Financial and Ford Credit, for example, already offer mobile payments, while Pelican Auto Finance began offering it this year to better connect with its borrowers and improve its ability to collect loan payments, especially subprime borrowers. And this interest is likely to increase as 32% of auto lenders plan to increase their investment in mobile applications in 2018, according to a poll conducted at the 2017 Auto Finance Summit.
6. Browse and Buy
More than half (51%) of new-vehicle internet shoppers use a mobile device — tablet or smartphone — to digitally conduct automotive research on the internet to help them find the right vehicle, at the right dealer, for the right price, according to a J.D. Power 2015 New Autoshopper Study. Startups like AutoGravity, Fair, and Instamotor are working on the browse-and-buy through your phone to tap into mobile-centric users.
7. Showrooms, Not Dealerships
Tesla Motors popularized the idea of a showroom instead of a dealership, and the idea has started to catch on. Companies like Even Electric are currently signing licensees with OEMs for pop-up showrooms around Europe.
As brick-and-mortar and big-box stores face a death knell, millennial shoppers are highlighted and not desirous of salespeople and stores but instead showrooms and experiences. This is evidenced by the fact that stores outside of the auto business, like clothing brand Reformation, are adopting the Tesla-concept for their own retail.