As Peak Losses Loom, Digitization and Hyper Personalization may be the Keys to Profitability, but Where do you Start?

Everyone seems to be talking about how fast auto finance companies are (or should be) adopting digital solutions. With stacked technology road maps and pandemic-induced stress, trying to figure out where to start may feel paralyzing.

It’s perfectly reasonable to walk before you run. Digital platforms that are modular and allow you to adopt the solution you need today to enhance resilience, protect or grow profits, and/or reduce non-compliance risk are a great place to start.

Key takeaways

• The pandemic turbocharged digital adoption. Laggards can still leapfrog if they take swift action to address consumer preference for self-service – with a focus on solutions that can be integrated into existing infrastructure.

• If customers can self-serve 24/7 and evaluate their options, opportunities to identify solvent customers and convert untapped revenue through refinancing offers and recast or skip-a-pay for a fee can be immediately recognized.

• Prioritizing digital solutions that automate manual tasks, address inadequate controls and improve response times mitigate bias and consumer harm that could lead to lower profits and a damaged brand.

Back office innovations can lower costs and drive revenue

Over the past few years innovation has focused on sales, marketing, and F&I. BAI’s February 2021 Executive Report “The transformation continues: Digitizing the back office” noted that finance companies should move “the back office to the front seat,” and focus on “operational-side automation.” The report went on to say that “the curtain is rising to reveal stubborn inefficiencies that remain part of the back office, from outdated technology to heavily manual processes.”

By focusing on the back office, servicers can leverage new innovations and their vast amounts of customer data to hyper personalize offers for both hardship relief and revenue generating products.

And while new revenue is always top of mind in a low-interest environment, a recent Deloitte report revealed that in response to the crisis and revenue uncertainty, companies are actively pursuing cost reductions: “Two of three companies globally (66 percent) now have cost reduction targets that exceed 10 percent.”

In the same Deloitte report, the authors noted that automation is the top transformation action to come out of the current pandemic, and roughly two out of three companies expect to pursue the process. Cost reductions can be accelerated by automation.

Hyper personalization can drive results

Loan loss projection planning is essential, and auto finance companies and servicers spend a lot of time trying to figure out “how bad can it get.” Adopting digital tools to pivot quickly into strategies that generate revenue and reduce credit losses regardless of macro drivers can improve resiliency.

Which brings us back to hyper personalization. This Deloitte report notes that “by adopting hyper personalization, [financial institutions] will respond to customers’…needs and, in doing so, will differentiate their brand, multiply their revenues and increase financial inclusion.”

No doubt, deploying large teams of data scientists and artificial intelligence would accelerate hyper personalization, but you can walk before you run. If the tools you adopt lead to more data points that are not immediately actionable or create analysis paralysis, think smaller.

There are flexible customer-facing platforms available today that hyper personalize based on customer input, third-party integrations, and sophisticated algorithms in a single session to help find the solution your customers need both in the front and back offices.

Build or partner?

Most innovation journeys begin with an in-house review of what can be built.

For mid-sized auto finance companies and servicers, internal builds for non-core features are more often a distraction, even if the skill set exists internally to build the features that solve your business problem. A decision to build internally must be backed by considerable resources: money, skill, a patient and tolerant culture for failure, and the ability to pivot quickly.

Fintechs are generally unencumbered by legacy costs and systems, so it may make sense to partner with nimble companies whose only focus is solving the problem you seek to address. Partnering may offer a more cost-efficient way to launch features and go to market more quickly than if they had been created in-house.

Your new partner should be able to solve the targeted problem and deliver strong subject matter expertise, a focus on compliant solutions, a technology roadmap that you can grow with, and a solid understanding of your customer’s journey to leverage self-service offerings.

And most importantly, they should help you become more resilient so that you can pivot quickly regardless of market conditions which in today’s environment still remains uncertain.

Catherine Powers
Catherine Powers serves as the CEO of Constant.AI. Prior to launching the loss mitigation platform, she led Constant’s consumer origination business. Catherine previously served in senior management roles with SunEdison, Inc., including head of global acquisitions in the investment banking division. She began her career as a public affairs executive focused on energy, tax and IP matters.