With all the hype surrounding the auto manufacturers last week, this news item got short shrift. Nonprime indirect lender Consumer Portfolio Services has launched a pilot program that enables borrowers to make their monthly car payments via cell phone.
The system is straightforward: CPS customers sign up for Western Union’s Bill Alert Text Message Service, then enter their CPS account numbers and payment information. When payment is due each month, they receive email alerts through VeriSign. Then all they need to do to pay is text “yescps” to initiate a Western Union transaction (for which they’ll pay an extra $10).
Ahhh, finally an auto lender that understands the benefits of mobile technology. Sure, the average CPS customer is 41 years old, but even among that age bracket, text messaging is climbing. Here are some recent stats:
* More than 1 trillion text messages were sent or received in 2008, almost triple the volume from 2007 (363 billion).
* On average, more than 3.5 billion SMS messages are sent or received per day.
* 82% of adults 18 to 24 are avid text message users.
* Of the 25 to 49 age bracket, 72% use text messages.
* In all, 53% of those who send and receive text messages are at least 35.
Needless to say, the concept is certainly on target. I would add, though, that cell phone payments should have been part of the auto finance industry for years now.
When I first started in the sub-prime business in 1984 there were virtually no other lenders in my market. We financed 95% of wholesale, REQUIRED real cash down payment, and discounted that paper by 10%. Our max term was 48 months. By 1995 we were financing 100%, still required real cash down, and discounted 5%, but we still would not extend terms past 48 months. In 1995 I started with GE Customized Auto Credit. Max term was 60 months, 10% cash, trade equity, or rebate was a requirement with a max advance of 110% and discounted 7%. Just a few months ago there were lenders allowing 84 months, 145% line 3 advance, no cap on line 5, no down payment, no poi, no por, financing vehicles with high mileage, and just begging for deals. Am I the only one who saw this coming? Now we are trying to get back to where the business was in the mid 90s but thanks to all the greed there is no such thing as an average customer who owes anything close the acv of his trade. It will take some time and many companies will not be here to see it, but the sub-prime business will return and when it does the advances will be back in line, the down payments will be required, the terms will be shorter and there will be reasonable requirements placed on the customer. Then it will start all over again when more lenders start coming back into the market with greedy executives that place quantity over quality. We have come full circle once. Will we do it again? My answer is “yes”..
What I find interesting is not that CPS sees its age demographic as finding this service valuable, but that CPS projects the payment tool as finding value within its credit-score demographic. The convention wisdom has always been that the demographic with lower credit scores is not as technological sophisticated or “adventurous” as prime borrowers. Based on the adoption rate of this product, we’ll see whether that convention wisdom is still correct.
Cell phones usage:
The US may not follow global trends, but … in some parts of the world cell phones are used primarily for texting rather than for voice. Some of this is pricing, you can get “as used” phone contracts. But you can text in public, whereas phone calls in mass transit or restaurants are frowned upon (or worse). My sense is that it is growing in the US, which typically lags the rest of the world in cell phone usage, and that as in the rest of the world this not specific to higher-income/sophistication users.
In Japan, many consumers in 2007 (when I last lived their) used their cell phone as their primary internet browser. Web advertising & retailer web sites were geared towards that, including with sites specific for cell phones with their more limited graphics resolution. Again, I observe a minority of students and others whose usage is leaning in that direction, the iPhone crowd.
There may be some “real estate” for web developers … and the software may be there already, in other markets, ready for localization to the US context.