FOR years the car industry has made its customers sweat the financial sizing up.
From proof of income to employer details to credit rating analysis, quick it isn’t. Yet fintech and AI promises to strip this bureaucratic triathlon to a few swipes and a digital signature – in theory.
Given all the governance responsibilities around lending, is this realistic? Responsible, even?
Martin Hill, MD of finance and insurance integrations player DealTrak, claims his company’s software acts as a ‘glue’ to bind insurance and finance players closer.
“One signature for the finance sale – absolutely not a problem. There are lenders doing that now. But a car dealer will want something that demonstrates that the customer understands the compliance journey.”
This demands a series of ‘clicks’, so the customer understands the questions they’ve answered. It’s quite possible – now – to take the paperwork out of the process. But not all of it.
“That’s largely,” says Hill, “because the finance and insurance journey, the car journey and the compliance journey that ties them together, have differing demands.”
As well as different operational cultures. Uneven consumer financial confidence and, sometimes, sub-par negotiation skills, used to hand sales an advantage. But a swipe of a smart phone now tells almost anyone if a deal, including options, is good or not.
The human ‘bit’
The balance of power has fundamentally changed: many consumers will put in more than 14 hours online vehicle research before they get near a dealership says Andy Alderson of online leasing broker Vanarama. “Realistically they know as much or more about a vehicle than the salesperson.”
Scott Norville, MD of Silverstone Fleet Management, says digital tech is capable of a 72-hour order-to-delivery now. “The customer,” he says, “searches for their new car, can order online directly, then signs the finance documents with ‘esign’ and the car is delivered the next day.”
Norville says they’ve had success up to a point with the model. But human interaction is still important. “The customer, no matter how they have ordered, likes to talk to the company before finalising the deal.”
“It’s different for low ticket items, but vehicles are a different matter. Customers need to check specifications, confirm delivery. It’s also best practice for the broker to confirm personal information before the proposal is submitted to the finance house.”
Regs seen and unseen
With margins for most volume players at less than 2% the car industry has to manage and anticipate the long-term income streams – parts, bodyshop, servicing – as well as finance and insurance – if it is to meaningfully sustain itself.
What’s less obvious, points out DealTrak’s Martin Hill, is that cost-heavy compliance is not just across the sales desk and showroom but all over the business: dispute resolution, systems & controls, training & competence, fit-and-proper people…
“The fact that you have a tick in a box for people to understand what they’ve bought is great. But that’s just one of a myriad of regulations you must adhere to.”
Much of the usual data requirements for vehicle finance tends to be funnelled via a credit reference agency, such as Experian.
When there’s a shortfall in historical info, London-based fintech credit assessment company Aire says finance customers are invited “to provide additional financial and lifestyle information through a short online interview”.
“Answers provided by applicants,” says Aire’s chief commercial officer Matt Davies, “are validated with machine learning algorithms to give a precise view of credit risk and affordability that allow an automated, real-time decision.”
In other words, more context is allowed in. Davies reckons there are 6m ‘thin-file consumers’ in the UK. “Lenders who rely only on historic and often outdated or incomplete data sources to assess consumers will find many people falling through the gaps,” he adds.
Where does this, then, leave the ‘click-and-go’ idea for everyone else? Somewhat, it seems, delayed – which actually might just be fine.
Making a living in the digital environment is super-tough
- Finance and insurance income is under competitive pressure – both of these income streams are now regulated by the Financial Conduct Authority (FCA). Up-coming FCA rules (due later in 2020) may ban commission that give brokers incentive to raise customer interest rates. It’s also likely that finance commissions will become much more explicit to consumers
- “It is not clear to us,” said the FCA in 2019, “why brokers should have such wide discretion to set or adjust interest rates, to earn more commission, and we are concerned that lenders are not doing enough to monitor and reduce the risk of harm”
- Many motor industry professionals joined the industry before it was regulated by the financial watchdog – so there’s much less room for natural sales talent and ‘deal-making’ than in the past. Consumer credit has been regulated since 2014