Auto finance professionals are swimming in a sea of technological possibility. There are so many software providers out there that promise to bring digitization to auto lenders. Yet it’s often difficult to determine which software is best suited for which lender challenges. Furthermore, even once a piece of software is found, internal fears, stakeholder resistance and departmental divisions can jeopardize the success of the integration process. Based on my work with clients in the auto lending space, I’ll present a few recommendations that will increase the probability of an efficient and successful digital transformation.
The Issues Holding Auto Lenders Back from a Digital Transformation
Choosing the right technology is hard enough. With many vendors out there, it can be a struggle to determine which software will actually make a difference to the lender’s bottom line. No lender wants to expend time and money bringing on new technology, only to understand its impact is minimal. The question of which technology is best for a lender’s purpose will require the procurement team and others to conduct deep research and likely a pilot program.
Yet there are other, more amorphous fears and obstacles that hold lenders back from even getting to the point of decision-making. Before a technological evaluation process can take place, the following fears must be addressed and moved passed.
Many auto lenders continue to require prospective borrowers to come to a physical location to get prequalified, fill out the application, submit stips, or modify a loan’s terms.
These lenders often believe that requiring customers to take these actions in person reduces the risk of fraud and keeps regulators at bay. Indeed, auto lenders and dealers are accustomed to comparing photo ID to a real person who shows up, and receiving physical copies of documents. To these lenders, paper processes provide reassurance. And going all-digital can feel risky, especially given the risk of hefty fines.
Yet these concerns are based on a perception of technology that’s largely outdated. For example, remote ID verification intuitively sounds less accurate, but today’s facial recognition accuracy rates have reached over 99.97%. And eSignatures are just as legally admissible as wet signatures, and in many cases more compliant as they come with an audit trail.
Tip: Ensure the vendor has all the compliance and security certificates needed, and inform other stakeholders to provide reassurance.
Auto executives who are trying to champion innovation often face resistance from other executives, managers, frontline employees, and the security department. Executives angling to receive budget for their own projects don’t necessarily see the urgency of adopting digital tools; frontline employees may be accustomed to legacy systems and express reluctance about having to learn new technology; security is naturally skeptical about introducing third-party software due to the threat of data breaches.
When acquiring new technology, it’s important not just to get buy-in from mandatory stakeholders, but from anyone else who will be affected by the new technology, including the people who will actually be using it. For that reason, a multi-pronged approach to winning over their support is necessary.
Other executives need to understand how technology can help them meet their department goals; managers need to see how technology can help improve their workers’ performance, frontline employees need to be shown how the technology will make their life better (and get hands-on training), and security needs to receive information about the technology’s certificates and other important information.
Tip: Cultivate a culture of compliance. Ensure there are visible, senior roles dedicated specifically to innovation and the customer experience. And have these stakeholders connect regularly with compliance and security teams, which are often the most reluctant to introduce change.
A majority of lenders already rely on technology. CRMs are digital and widespread. Advertising is now largely online. And credit applications are at least partially digital.
Yet many lenders still rely on face-to-face financing or introduce non-digital processes at some point during the originations journey. Lenders may believe they are “digital enough” and that the cost of going fully online is too steep. Others may be concerned that their dealers, particularly smaller ones, don’t have the budget to work with digital technology.
Given these budgetary concerns, many lenders forgo the next step of digitization — and therefore miss out on an opportunity to increase efficiencies and customer and agent satisfaction.
The good news is that lenders are more equipped than smaller dealers to purchase and integrate an end-to-end digital platform. And given the reduced overhead costs, reduced agent churn, and shorter turnaround time that ensues, customer-facing technology is an investment that pays for itself. The ROI is excellent with little downside.
Tip: Don’t settle for partially digital systems, and go all-in on a fully digital frontend. It allows the auto lender to stay relevant and desirable to dealerships, differentiating themselves from the usual siloed, half-digital solutions.
The Bottom Line
Fully digitizing the loan originations and modifications process is well worth it. According to PwC, 63 percent of dealers see the biggest ROI in digitizing the F&I process. Auto lenders would do well to work hard at overcoming the compliance concerns, stakeholder resistance, and budgetary hurdles that can hold back a greater digital transformation. Once these obstacles are out of the way, the focus can shift to selecting the most suitable provider that brings real ROI.