<span class="TextRun SCXW170000185 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW170000185 BCX0">Featuring:</span></span><span class="TextRun SCXW170000185 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="none"><span class="NormalTextRun SCXW170000185 BCX0"> Craig Harter, Head of US Indirect Lending, BMO Harris</span></span><span class="EOP SCXW170000185 BCX0" data-ccp-props="{"201341983":2,"335559739":160,"335559740":336}"> </span> [toggle title="TRANSCRIPT"] <div class="transcript-scroll-box">00:00Okay, hi, everyone. Welcome back. 00:06 Welcome back. We are going to, I want to first thank netsol technologies for sponsoring the afternoon break. And before we start this next general session, we're going to conduct that second poll. And so this second poll again sponsored by white Clark group. And so the poll is for which digital technology will you increase your investment spending most in 2018. And the options are mobile applications, direct lending, artificial intelligence, car subscriptions, and or rideshare, or E contracting. So go to the mobile app and go to the agenda. You can place your vote in Live poll. You'll see it'll say live poll too. And we'll come back after this session. And I'll give you the results of that poll. So and now, and I want to also just remind everyone, please submit questions through the mobile app. It's my great pleasure to introduce Nathan half who's the president and co founder of honker, please join me in giving him a warm welcome, Nathan. You get the middle seat, Nathan. Cool. Good to see you. All right. Okay, so, welcome. Thank you. Welcome. I'm so pleased that you're here with us. Thanks for having me. You got it. Alright, so 01:51 just give me a little bit of background for you. For us. Excuse me 01:57 on 02:00 You're how you got 02:01 to honker. 02:05 I think you started. This is what your fourth 02:09 startup is that right? Yep. For startup. So tell us about how you kind of got to hunker. 02:17 I actually tried to lease a car at a car dealership in New York about a year and a half ago. And it was a less than pleasant experience. I went into the dealership. First thing in the morning, pretty much knew the car that I wanted, started to negotiate with the salesperson couldn't get an actual price. Without a loan credit applicant actually was even worse than that I actually had to pay the dealer $100 that he promised to refund me in order for him to run a credit application and to give me a price and I couldn't understand why I just couldn't get a price on it on a on a monthly payment lease. And I spent the whole day there. We did the whole back and forth and I actually ended up leaving without even getting the car, which was very frustrating. I was working on cyber security software at the time with my team and I came home that night and I was like, we're stopping everything. We're going to build an app for car leasing. And that's literally how it went. And most of my team is actually based in Israel, and they had no idea what a car lease was. So there was a long education process. And a year and a half later, we live primary markets in the New York tri state area in Southern California. We just opened a few more test markets, nearly 400 dealer rooftops on board. It's very exciting. 03:38 Okay, so you had the startup. 03:42 And what happened with that other technology as a side question, actually, it still exists. It was originally for consumers, we had imagined it being for consumers. And then some of the other partners in the company sort of revamped it and it became a business to business software and it changed Right, some licensing revenue. Okay, not so 04:01 bad. It's not bad. 04:02 Not bad. Okay. So describe, we're going to we're going to take a look at the app in a second. But, you know, before looking at it, even the general, you know, what is the general value prop that you're aiming for, with the application. 04:20 So there's, there's two problems, essentially, that we're solving. The first problem is, is that there's no way to get an actual lease price on the internet today, or a monthly payment, if you will. You can get estimates you can get subject to, and so on. But if I just want to know how much this costs a month, what I do at signing is, it's very, very difficult to get that for the lease. So number one, the value proposition is when you register for the app, we do a soft credit check. We have all the data on the cars that you're looking on on you. The dealership has a dashboard where he sets pricing, we take all this data, we normalize it to be able to just give you an actual lease price. That's Number one, and number two is completing the transaction. You know, we have checkout everywhere else on the internet. Why don't we have checkout with the car so when you meld those two things together, what you get on honker is essentially a three swipe experience. Choose the car that you want. Bread, pardon me browse for a car that you want, choose the car, click the lease button, and you're done. A completed lease transaction with a specific Vin, a specific customer, the price that the customer saw, gets pushed to the dealer that that car is coming from a dealer gets a notification on their cell phone, the salesperson at the store that's handling the honker orders, clicks on a little link, it opens up his dashboard. All the customer's information is there and everything else. It's three swipes for the dealer as well. He confirms inventory, runs a credit application and confirms paperwork and delivers the car so it's actually a completed transaction. 05:56 So should we take a look at the ibeacon Do you want to put the first image so tell us what we're looking at here. So 06:04 that's essentially our business. And those three screens, the screen on the left where it says, choose and make and model. And then on the bottom, you have other ways of entering the app. The top line says choose a make and model, which is for the customers that we assume know what they're looking for. And then a little drop down will come. Let's say you start typing Toyota, there's responsive search. It'll give you all the different Toyota make, model and trim. If you're not sure of the car that you're looking for underneath it. You can search by car type, or you can search by best value, I'm just looking for a deal I have a budget of $200 a month. The second screen will populate the cars and the prices with monthly payments next to it. And that's a swipe up and swipe down screen. Again, those are actual vins. So the black one means that it's black with a gray interior. The gray one is the gray exterior with the white interior, and that's an actual monthly lease payment next to it. On top of that you'll notice in small letters in the black There is actually a filter where you can filter just by features of the CAR If you're looking for maybe you don't know what packages, so you're just looking for navigation moonroof, and leather seats, it'll narrow the search and so on to the right of that you can move around between term and mileage. So the average lease from 24 to 48 months and mileage from 7500, up to 48, or up to 18,000 miles pardon me, you browse through those vehicles, there's a little search button on top, you can change your search, click the car that you want. On the final page, you have all the specs of the vehicle, we do a really good job, I think, in normalizing the ton of data with our data partners. Some that you may know some maybe not everything there is clickable so when you when you touch the car, it'll open up interior and exterior views. When you touch the specs, it'll open up the actual specs of the car, including packages and then again, the price. On the right side you have you can change the term and the mileage again if you'd like. You have add ons, which is the f&i products and then lease so That's our business. Those three screens after the customer clicks lease, we prompt them to update, upload a few pieces of information and the deal gets sent to the dealership. Okay. 08:10 Let's look at the next slide. Okay, so what are we looking at here, 08:15 so that's the dealer dashboard. And it's important to note that when the when the lease is consummated, we can push it to the dealer CRM, we can push it to their DMS, we can push it to our dashboard or everything wherever, whatever the dealer prefers. But that's a typical dealer dashboard, where the dealer has the three swipes on the left side on the top, you'll see the little picture of the vehicle, 08:37 is that 08:38 sure? So you'll see the picture of the vehicle and then to the right. We're notifying the dealer that this is the stock number. This is the VIN, this is the price all those are clickable, they open up little pop ups. The worksheet will show up the rebates if any rebates or incentives were applied everything complete in front of the dealer and then you'll when you move down onto the screen you'll see on the left side credit, a pardon me inventory credit and paperwork. The dealer confirms the inventory. Mm, customer gets a notification the vehicle has been locked up for you. He has all the customers information. You'll notice on the bottom left if you click on show private information, it decrypts the customer's private information, including social security number and so on and so forth. 09:24 He runs a credit application. 09:27 And once the credit is approved, declined request cosigner, all those options show up, customer gets a notification, your credit has been approved, and then the app prompts the customer to upload his insurance. Once he gets that. Once the dealer gets that. Again, he approves paperwork and sets up a time for delivery. It's it's actually more unbelievable than what it looks like on paper. It's it's shockingly unbelievable. If I can if I can be dramatic for a moment. The number one thing we get from customers is Like seriously that I just leased a car like bringing it to me in two hours so that's that's the that's the kind of insisted the 10:07 papers, you're writing the paper or you're good. So basically we 10:13 we've integrated or we have access through third party providers, pretty much every lender, from the captives through to the local credit unions and everybody in between. and the dealership on the top of that dealership screen you'll see the dealership tab on that tab. We give a ton of choices to the dealer to really tell us how broad or narrow Do you want your PMA to be? Like, where do you want your cars to show? Which lenders Do you want us to quote off of? So you have most dealers restrict themselves to the captives. You have some that have relationships with credit unions or other third party lenders. So when the consumer sees a price, we don't necessarily tell him where that price is being quoted off of on our FAQs. We say generally, it's off of the captive in an instance where it's coming from a third party will let you know and give you a choice to either accept the lease or not. But but the dealership is essentially completing this transaction the same way they would if the customer walked into the store, except it just came through the app. So if there's, if they're if they've restricted themselves to the captive lender, you know, whether it's Hyundai, Toyota, whomever it may be, then that's who this is going to be quoted off of. If they haven't, then it may be quoted off to someone else. So 11:28 and how are you dealing with the various underwriting guidelines? Because it seems like the the lease offers taking place. 11:45 Yeah, go ahead. Sorry. 11:46 An interesting question. We lose a lot of sleep over this. So about a year ago, we attempted to build our own credit matrix essentially extremely extremely complicated process. It's evolving lenders have different criteria for different regions, different customers, one customer as a tier one today, tomorrow he isn't the relationship between management that the store and their analysts quote unquote, where they can get credit bumps in some instances, and so on. So that's a challenge to find the right criteria to quote the customer, are we actually giving them a quote or not? So we have this custom credit matrix that we've built. It's a work in progress, it's somewhat incomplete. I would say we're probably about 80% of the way there. We're also obviously talking to the likes of you know, route one and dealertrack and we've been testing for a long time their systems for instant credit approval or denials, you know, tier allocation and stuff like that. For the moment we've we have not yet completely integrated, we feel like our matrix is a little bit more specific and better in some ways. Not It doesn't drop it into the dealer system in every instance. But bottom line is we're very close to, to getting it right. And we've gotten a lot of feedback from both some lenders, in some cases, the dealer groups, and so on and so forth. But at some point, we hope and one of the reasons why we come to events like this has to interact with the lenders, we hope to get deeper integration, we hope to get better access to more criteria from them. We hope that at some point, they become a little more digital as well, if I can throw that out there. So 13:30 that was easier for companies like us. What do you mean by that? Like, what 13:32 what would you what would make your life easier 13:38 to have the information readily accessible to companies like us in a format, computer readable to a certain degree in formats that we can access via API's or otherwise, open it up to companies like us, instead of restricting it to the two or three companies that they want it to be restricted to that they have these relationships with employees. To do business with those companies, not that by any means that it's bad to do business with those companies, but those are very large corporations in some cases that are unable to or take, don't move at the pace of the startup where you need things done really, really, really quickly. And you know, there's teams of people that have to make decisions that have to do things and management that has to make decisions. And it's frustrating when we sort of just want to get something done and get it out there. So some lenders are reaching out to us in many cases, and they have and we've we're communicating and building around them. Others we've reached out to it's very hard to get this right. But I believe that within our company over time, this will become, you know, an ongoing project, probably allocate 20 25% of our resources at any given time, really that much to getting credit, correct. 14:48 What just as a, you know, what 14:51 kind of volume are you doing through the application right now? 14:54 So we're not releasing formal numbers. We did just do an early stage seed funding round that We're very proud of with some very important significant participants. value add participants. I mean, this was a pretty large round that you did, though. I'm from New York. So and it's not not 15:12 big enough 3.6 million doesn't impress it 15:14 was, it was a good star, 15:17 enough to give us a little breathing room and look at what else is going on in the space. You know, thankfully, there are some very, very big rounds going on and a lot of support from venture capital tech, venture capital, and also within the industry. And, you know, we're talking to a lot of new sources of more capital as we move forward. But it was a bit it was a nice round, and so on. So as far as volumes are concerned, we're not releasing actual numbers, but it's in the hundreds of leases completed per month. There's much more than that that's actually coming through the system. But as a start up, you know, you're iterating you're learning and iterating and as fall off, and so on and so forth. Yeah, 15:54 so so like, what is the what are some of the takeaways that you're gleaning from that Let's start even just from a demographic standpoint, I mean, 16:04 right. So the first takeaway is, is that there's no doubt that there's a need for this. I mean, it's funny my, when we went live on the app store's, my team came over to my house for dinner. And we sort of literally have like an international team, especially on the tech side. And we had drinks. And I was like, does anybody think anybody's gonna actually use this? It's like, it's like the founders dilemma. You're like, okay, we worked so hard on building something, we put our hearts and souls into this, Will anyone use it? And literally the next day, we did Elise, and it was like, wow, you know, holy cow. How did this guy even find us? And it's been really, really good since then. So the first takeaway is, is that absolutely no doubt the industry needs to pay attention to what's going on because consumers want this and they need it. And that's on the consumer side, on the dealer side. It's been awesome working with the dealers as well to very quick to bring dealers on board. We're literally picking and choosing dealers at the moment. And opening markets ad will to, to a certain extent and a lot of inbound dealer interest. Demographics. It's still a mix. It's hard to tell we've only been live for a very short, a very short period. So I would have thought, if you were an investor and I was pitching you, I would have given you the millennial story. You know, millennials, my son would never walk into a store. He's not going to do it for a car. But believe it or not, we have a good mix. A lot of millennials, a lot of older professionals blue collar, white collar, a good mix of consumers that are using it 17:39 and give us an example of an iteration on the process from the from the UX standpoint. 17:47 Yeah, yep. awesome question. So that's I spend a ton of my time in the product itself. I consider myself a product guy and I want something that's incredibly light and easy to use. So in a couple of weeks for coming in With so when we went live, we were like, let's just prove this concept that a consumer wants to lease a car and a few swipes. They don't necessarily need a test drive. You know, you hear from some of the old timers in the industry. Yeah, you know, people want to touch and feel. I don't know, you know, my wife buys shoes online, she doesn't touch and feel it before she buys it. So why would you absolutely need to touch and feel the car. So, so the so we launched the simplest possible lease, no money down a few swipes, and you're done. Now that we've been live for about eight months, and we're getting both, you know, the West Coast response and the East Coast response. We're hearing you know, examples of you know, I mean, at least I want to get out of it. You know, I have six months left, but I don't have an offer from Lexus necessarily to turn it in. So in our next version, we'll have one click where just before Checkout, if it's the least button when it's relevant to you. There'll be a little circle there that says when enrolling your existing payments, you'll open it, click it and automatically your payment will reflect Did you know you rolling in your past payments into your new lease just as one example, cosigner as another example until now, it was only when credit comes back and says you need a cosigner that the customer would get a notification in the app to upload cosigner information now we're giving the option as millennials come on board and they want the parent to sign or they have student loans and therefore it's affecting their credit in a certain way. You know, they may be 26 years old, right in medical school. So we're giving them that option along other things that are we're releasing in the next few months. Okay. 19:32 Maybe talk a little bit about your impressions 19:34 on on the in from an industry standpoint. You You mentioned even as we're sitting here that you haven't done a DNS integration, what what's your perspective on sort of the lay of the land on, 19:54 on on that 19:56 everybody knows that they need to evolve. 20:00 The entire industry needs to evolve. My impression is that I'll try to say this respectfully. I don't think a lot of people know how. And sort of the industry is stuck in this dilemma. You have the OEMs trying to do their own innovation. You have dealer groups trying to build their own things. You have the massive software providers, like the coxes of the world that are trying to do certain things you have guys from outside the industry, just entrepreneurs that are that are trying to do certain things. It feels a little bit fragmented to a certain degree. But I but we do see like improvements month over month over month, in in things sort of coming together. So it's a very, very exciting space. We absolutely love it and are grateful for to be able to be a part of it. But it still feels somewhat early. 20:52 Okay, so 20:56 Okay, actually one more question before I turn to online. audience questions and there are a bunch of Thank you. So I know you mentioned even here, the conversations that you're having with lenders, it's the captive parts that the part that you really would like to have deeper conversations with, I think, 21:20 yeah, but the captives have so many layers of management that one guy calls you up with a VP title and the next guy calls you up with an executive VP title, and neither of them know each other. And it's, it's a little bit frustrating. The captive mandate essentially, is get people into the stores. Because if we don't get them into the store, if we don't lend money and you know, ultimately, that's what where we need to be but it would be awesome if we can sort of just get things going make these decisions, you know, build some partnerships and so on. And I know that I sound a tiny bit frustrated. 21:54 On this particular topic, I don't mean to 21:58 it's just because of the scale of The industry its enormous. There are so many different players. And honker is certainly not the only people out there that are that are trying to make a dent. But it is getting better. And I think we're I think we're making progress in that area, but it's not specific to the capitals. I think that there are plenty of lenders out there that we could potentially do business with. Okay. 22:20 Let's, let's take some some questions here. 22:24 from the audience. 22:28 We'll try to 22:30 make it a good one, JJ. 22:32 I mean, some of these are very, you know, specific. So can you search car by monthly payment, or cash and or cash 22:39 them? In our next version of the app? Yes, we have a version for that. That's 22:44 almost ready to go. How are you getting access to rates, residuals, incentives, acquisition fees, etc. to accurately estimate payments, we have 22:56 a few different partners that we use to get us that day. A market scan being one of them for a big chunk of our data, and then a ton of other partners for a lot of other things. 23:09 How does your company make money? 23:12 So our revenue model at the moment is split 5050 between dealer and consumer. We charge dealerships rooftops subscription fees, which are generally waived for a certain period of time just to come on board. And then there's a per vehicle deliver per delivered vehicle fee. And on the consumer side, we offer ancillary products in the app, including some f&i products, other products that relate to automobiles, depending on which market you're in. And in addition, we're close to offering auto insurance in the app as well as an agent or broker depending on the market that we're in. So that's our consumer side. Right? And 23:48 so how much of how much of that how important will that be to your 23:52 it'll be very important. Much like the store today you don't make money on the front end of the car is the is the lingo. So all these ancillary products around it. But we have a roadmap that's coming over the next 12 to 18 months that will produce significant revenue for us and new products that we'll be releasing as well. 24:10 So why just why just leasing? 24:19 That's it. It's a good question. And we actually have an internal dilemma about this too. We have a version of the app that's ready for retail finance. Honestly, I don't believe in in retail. I think the evolution of cars right now is is moving away from it. leasing is 35% of new car sales, somewhere around five and a half million vehicles last year. I just don't see the younger generation of Americans pride of ownership is gone. You know, you buy an iPhone, you get rid of it. Two years later, I sort of look at a car the same way. Technology is moving at such a fast pace cars are updating at such a fast pace. Your will wants to be stuck in an old car, when there's something amazing in the new one that you can use. And I feel like we just want to we, you know, it's the era that we live in. So leasing is very exciting. And there's a lot going on in leasing. It's very exciting to not so that doesn't completely exclude us doing retail. But for the moment, we're very focused on leasing. 25:21 And do you. 25:23 I mean, this is maybe a bit farther out. But do you think about like, subscription models that's sort of on the other side of the coin? Absolutely. 25:31 And I think from my humble perspective, self driving cars are coming sooner than people believe autonomous V's are going to explode. ride sharing is here to stay. There's no doubt about it. And I think that we may move into this very aggressive subscription model. And and I hope that we do and I think that we're very cutting edge in in the sense of, you know, moving, moving and innovating as fast as we can we sort of look at our As Netflix, you know, they started with delivering DVDs because that's where movies were at the time. You know, once streaming became popular, they sort of moved the business into that, and I think will will evolve as the industry moves. 26:11 Does the dealer still have the option to sell ancillary products at delivery? Or is that done through the app? 26:17 Both were huge supporters of the dealer. Part of me the dealer network network across the country. So dealers can post their f&i products on their dashboard, they show up automatically in the app, and once they make contact with the customer, they're more than welcome to sell whatever they want to the customer directly. So 26:36 take a half a 26:37 half moment and talk about the variance between dealers and and their how, 26:45 how bad is it and how good is it? 26:48 It's it's grouped by group store by store, it really just depends on and where you are. There are groups that are really at the forefront of pushing technological advancement right now. Many Many groups, some of the some of the national ones, some of the regional ones. And this process starts at the top owner principals, or senior management and then it trickles down into the store as they they huddle up with their GM GSM. And they're like, Look, this is what we're doing. Get your guys on board. This is where the industry is going, if we're going to be here and 10 years from now, we need to participate in this. On the other hand, you have the dealers word starting at the bottom, and it's moving up where young salespeople are hearing about us or seeing us or downloading the app, and then they're going to their gms or to their ownership and saying hey, you guys got to get on this order processing is also a work in progress many dealers, they're amazing, they get an order they knock them out, I would say and and some of that burden is on us to make sure that we're training dealers correctly and and making sure that the process is very efficient, where we're growing our ops team, both on the east and west coast aggressively right now to make sure that we can support so it's really just a mix and and it's frustrating. We would hope that every deal would go through within a few hours and it Just get done. But the reality is, is that this is a paradigm shift in the industry. And it's going to take a little bit time. 28:06 There's a question here that reads, why build your own credit matrix rather than partnering with lenders to use theirs? 28:16 We looked at a lot of what's out there. And to make this seamless. We thought that this was was the best, the best approach for us for right now. But I emphasize that we can really go in either direction, you know, if we get enough lenders that it's just it's a work in progress. 28:39 So there's question what are your growth expectations for 2018? And then I have a follow Sure. 28:46 So we got a little bit of funding, that will give us the opportunity to, to set some milestones, do some marketing, open some new markets, potentially deeper penetration in the markets that we're in so we set very high internal expectations. We're very ambitious. And we have a near term, medium term and long term plan. And, you know, I hope we're back here next year and we're talking about maybe 1000 rooftops and, you know, thousands of leases per month. If not, I'll probably ignore your emails 29:16 that well, I you also were kind enough to share a presentation deck with me beforehand. Probably not my place to to share the targets that you have expressed there. 29:30 But suffice it to say they're 29:32 quite aggressive. Notable market share of total leasing. 29:41 Defend your, your, 29:47 your projection. When I was a kid, I remember my dad calling a travel agent to book an airline ticket. Today, it's a couple of clicks on a website. It was an aggregation. of an industry, you had the debt, you had all the data available. And you had the consumers on the other side, all you needed was a company to sort of build the marketplace, if you will, in the middle, to merge the two. I think that's essentially what's happening here. I just ordered lunch from doordash. You know, a year ago, two years ago, you needed to pick up the phone, call a restaurant, place an order, give a credit card number. I'm amazed every time I use an app like that, how unbelievable it is, how and where we've come. So that's how I defended I think the industry hopefully will get on board and so far, they've been amazing. And we're grateful for that. And I think this is sort of the natural evolution of where we're heading. You know, like it or not, it is the natural evolution. And, you know, we're happy to be a part of it. So, for those who think that in five or 10 years from now, consumers will lease or purchase an autonomous self driving vehicle. 31:01 from a local car dealer, 31:05 maybe they will. But I'm inclined to say that that would probably more likely happen through an app. 31:11 So the only thing 31:12 I wonder about, and this relates to the question that somebody from the audience asked about why only leasing is that, it seems to me that from a real estate standpoint, I'm talking to digital real estate standpoint. It is increasingly going to be difficult to parse transactions into individual applications and remain viable, relevant and so on. And in how I mean, that seems like would you say that that may end up being a great challenge to 31:51 you? Yeah, I think it will be a challenge. So 31:53 how do you how do you how do you plan to, 31:56 you know, we we love challenges, and I really really mean that I sometimes can't believe how far we've come in such a short period of time with so little funding. And it's, it's, it's amazing. I didn't know what a what a worksheet looked like a year and a half ago, I, I still have a problem understanding money factors to be honest with you. But I think that that we're ready to embrace those challenges. And when you can, when you see the the fruits of your labor, ultimately, and you see people actually using it, and you can gather that feedback and you can iterate it's very, very rewarding. So you know, we'll pick our battles. Maybe that will be one of them, maybe they won't, we don't want to we definitely don't want to be the be all and end all for everything relating to, you know, vehicle acquisition, we don't think we ever will be. We want to we remind ourselves all the time to keep it simple, stupid. Every time we have an idea. We put it on a whiteboard, and we get back to doing what we're supposed to be doing. So you know, we'll see how it goes. 32:56 Thanks. Thanks Nate Finch. Please thank Nathan for his insights. Thanks, Nathan. Yeah. 33:04 Okay. 33:07 So, before we go to the next session, I wanted to share the results of poll two. And and so to remind you the question was for which digital technology will you increase </div> [/toggle]
