Two of the largest auto lenders in the U.S. — Ally Financial Inc. and Wells Fargo & Co. — are evolving to accommodate the next generation of drivers — millennials — while BankMobile a new digital-only bank, has set its sights on auto finance as well.
Do the millennial strategies of Ally and Wells line up with what BankMobile, built from the ground up for mobile and millennials, is planning?
BankMobile is brand new — it launched Jan. 14. It has yet to dip its toes into auto finance, though the sector looms large on its roadmap as millennials appear to be moving out of their parents’ basements and beginning to buy cars.
“Not only do we want to offer auto finance to our customers, but we want to create a whole car-buying experience for the customer,” BankMobile Chief Strategy and Marketing Officer Luvleen Sidhu told Auto Finance News. “So instead of focusing on, ‘We’re offering auto loans in addition to our line of credit,’ what we’re trying to build into our application — or a separate app, we’re still deciding — is an experience.”
Through the planned app, consumers will be able to log into their accounts, shop for cars based on preferences and location, and view images and videos before purchasing vehicles, Sidhu said. They will never have to visit a dealership.
“We preapprove financing as part of that process, and the car’s delivered to their house with a bow,” she said. “They can test-drive it and send it back through a 10-day guarantee. So that’s how we’re looking at auto financing and getting into that space, it’s more about the experience.”
BankMobile, a branchless bank focused on the mobile experience, is a brand of Customers Bank, a $6.5 billion-asset institution based in Phoenixville, Pa. BankMobile aims to use technology to create an “effortless, enjoyable, and most importantly, a financially empowering experience” for its customers, Sidhu said — specifically millennials.
“I think that the millennial generation is attractive in general,” Sidhu said. “What we’ve found — when we look at some of our crowdsourcing, focus groups, and one-on-one interviews — is that millennials are very ‘not loyal’ — 33% are looking, in the next 90 days, to switch banks.”
“Headache,” “frustration,” “annoyance,” “fees,” and “getting ripped off,” are some of the terms Sidhu used to describe the way much of the younger generation feels about the traditional banking experience, and through its research, BankMobile found that 40% of millennials are “very open and excited” about the possibility of using a branchless bank, and about 75% are looking for a banking partner.
And despite the talk about millennials being a tough sell when it comes to certain major purchases, BankMobile believes that auto sales are on the rise among this age demographic. “What we’ve seen with the millennial generation is that home purchases have actually gone down, but in terms of car purchases, that’s on a steady increase,” Sidhu said
Like BankMobile, Wells Fargo is studying how the younger generation prefers to shop, said Dawn Martin-Harp, the bank’s head of dealer services. “First and foremost, we’re strengthening the online experience,” she said. “This includes things you might not expect, like explaining, ‘What is an auto loan?’ Financial literacy is important when you’re speaking to millennials.”
Wells Fargo, too, is building a system for the increasingly dealer-adverse generation, in which “customers can select a vehicle online and use PayPal to hold the car,” Martin-Harp said. Through the new system, customers would also have the option of having their car delivered, which, like BankMobile’s app, would further remove the dealer from the car-buying experience.
Ally Financial, meanwhile, is taking a different approach. Rather than exclude the dealer from the financing equation, Ally is relying on the dealer to educate the millennial generation, said Tim Russi, the bank’s president of auto finance. “Each consumer’s lifestyle and financial situation is unique,” Russi added. “And this holds especially true when it comes to millennials who are often just starting out in their careers and a car may be their first big purchase.”
Ally also maintains a consumer-facing financial literacy website, Wallet Wise, to provide customers with information on all of the steps associated with buying a car, including goal-setting, budgeting, learning about different financing options, and education on credit scores, among other things.
MILLENNIALS’ DRIVE TO BUY CARS
The ramped-up interest in cars among the younger generation could also be due to an improved economic environment, according to Dennis Carlson, deputy chief economist at Equifax Inc., who looks to the U.S. Census Bureau’s information on household formations as a sign of the times for millennials.
“Another thing to look at it is the number of people 16 [years] or older per household,” Carlson said. “This is a number that doesn’t move around that much, and what we’ve seen is a sharp drop in the past few months. Which may be, and I’m hopeful, a sign that millennials may be moving out of the basement, and moving into their own households.”
That number dropped to 2.13 per household in 2014, from 2.16 per household the previous year, according to census information. The trend is further supported by a rise in the household formation growth rate, which was up 1.5% last year.
“This is the first time since before the recession that it’s topped 1%,” he added. “While it’s too early to reach a conclusion, these two data points suggest to me that we may be observing the impact of the improving economy and labor market on the millennials.”
As the baby boomer generation ages and the economy strengthens, capturing the millennial market is going to become a bigger “part of the story” when it comes to auto finance, Carlson said, “and I think a lot of [the story] is going to be: who is winning in that, and who isn’t winning.”
Thanks to online resources such as social media, there is also no longer an information disparity between the auto dealer and consumer, Carlson said, and this has particularly evened the playing field for tech-savvy millennials.
“This is their life, and if you’re going to succeed with them, you have to be cognizant of that,” he said. “They pay attention to social media, particularly when they are looking to buy something. Most auto dealers will understand and say, ‘We know that going to finance a car is not necessarily a pleasant experience, but what’s happening is people are having what they consider to be bad experiences.’ Someone like me, or my parents, would think this is just normal, but they’re talking about how awful it is, and it’s starting this chain effect.”
With more than 9,500 followers on Twitter, Ally has long been active in social media, using it to draw attention to the company’s literacy programs, like Wallet Wise. “We actively promote these tools via our social media channels, which reach younger consumers,” Russi said.
With already more than 2,400 followers on Twitter, BankMobile is using social media to turn banking into an enjoyable experience, Sidhu said, by asking for customer feedback. The company also recently launched a Facebook contest to find the best new idea in banking.
BankMobile has been interactive since its beginning, when it asked its first customers what they wanted to see from the bank — “crowdsourcing ideas,” Sidhu said.
“If you take a look at our website, if you take a look at the engagement we have on social media and the blogs that we’re posting, it’s very relevant,” she said. “So it’s banking as it relates to their lifestyle, which is focused on fitness, health, dating, travel, and linking something as boring as banking into a lifestyle so they can relate to it better, and find it a little more interesting.”
Millennials also love to be heard, and to be part of the process, she added, which is why the bank asks for feedback at every opportunity.
“It’s an opportunity for them [consumers] to give us an idea of what they’d like us to implement or feature as a product,” she said. “One thing that we got was people saying, ‘We want you to be part of Apple Pay.’ So we made sure that at launch, we were part of this huge payment scheme that’s being radically adopted by the millennial generation.”
BankMobile is counting on its millennial expertise and millennials’ dissatisfaction with traditional banking when it rolls out its auto finance app. “It’s all about creating a proactive experience, rather than a reactive experience, where the customer has to go out there and do everything themselves,” she said.
The digital bank hopes to have auto finance available to its customers in the third quarter.
However, although BankMobile also released an app for the Apple Watch on April 24, the company has no plans to allow them the opportunity to make auto payments from their wrists just yet, Sidhu said.
“I think we’ll start off with our app, see how it does, crowdsource ideas for what people are looking for, and go from there,” she said. “But I envision that everything that you can do in your app, mostly you’ll be able to do on the Apple Watch, so hopefully yes, we will get there.”
Some aspects of buying and financing at the dealership that might seem onerous — but normal — to older buyers are the sort of negative experiences that get organizations bad reviews and horror stories on social media with millennials. For financiers and dealers, the customer experience must be top priority.Like This Post