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The Best Place to Start for Subprime Lenders Moving from Paper-based Document Processes to Digital

The subprime auto lending industry is undergoing a noticeable digitization evolution, driven by advancements in technology and the increasing demand for efficiency and accuracy. Digitizing back-end document workflows, particularly through the integration of AI and automation, are dramatically enhancing operational efficiency, cost reduction, and improvements in customer satisfaction.

With interest in digital adoption at all-time highs, it is important to explain how subprime auto lenders can embark on this digitization journey, detailing the critical areas necessary to integrate AI and automation into their back-end document workflows.

Managing vast amounts of documents with a plan
Subprime auto lenders manage a vast array of documents, from loan applications and credit reports to vehicle titles and compliance documents. Traditionally, these processes have been manual, labor-intensive, and prone to errors, leading to delays and inefficiencies. Digitization addresses these issues by converting physical documents into digital formats, streamlining the workflow, and enabling easier access and management of data.

The majority of today’s mainstream auto lending for new and used vehicles is all digital and originating through some sort of eContracting workflow or tool. Most of today’s captive lenders are taking advantage of this technology as well as prime lending institutions. However, we still see a fair amount of subprime auto lending transactions on paper, mostly in the independent retailer and the regional bank and credit union space. Even these organizations recognize the need for digital adoption, especially since adoption is moving from a suggested or preferred model to a forced and mandated model by way of compliance requirements in the subprime space.

Understanding how and where to get started
Subprime lenders must first identify a problem they’re trying to solve, not just adopt the latest shiny, new toy. They also need to make sure they’ve identified specific use cases that are tailored to the initiatives that line up with their stakeholders and executive board. This ensures they set early, reachable goals to reinforce their return on investments up front in the process.

Even with a plan, many companies still must overcome their own barriers to entry. Lack of resources, both financial and human capital, are the top reasons or problems businesses struggle with when getting started. In fact, 35% of subprime lender executives have said they are concerned about the lack of knowledge or expertise in making automation implementations to digitize their organizations1.

Identifying digital partners to make the right transition
Today’s leading organizations recognize that identifying the right strategic partner is key, and this can help ease management concerns and business challenges. Approximately 21% of subprime lenders have said they haven’t yet found the right digital solution for their lending needs, and another 19% said they haven’t found the right qualified provider to implement these solutions2.

The change from paper process to digital often seems like too much change and risky to adhere to compliant policies and practices. However, many lender executives believe that they must start at the beginning of the loan origination process, since this is where most of the regulatory scrutiny is today. Data collection, electronic document creation, and digital signatures must be done right and in full alignment with regulatory requirements.

Once subprime lenders create their strategic implementation plan, they must work with partners to ensure data integrity by implementing measures to ensure the accuracy and integrity of digitized documents. This might include quality checks and validation processes. They can then set up role-based access controls to ensure that only authorized personnel can access sensitive documents. This maintains confidentiality and compliance. It is also important to provide training on how to use digital document technologies effectively. Regular audits and updates must be made to ensure compliance with regulatory requirements.

The right way to integrate AI and automation
The integration of AI can also be daunting, especially when integrating with legacy systems. This includes dealer management systems or loan origination systems. This is also where it’s important to ensure you’re leveraging current systems and not just creating another process.

To start, a lot of subprime lenders look to integrate AI and automation in credit so they can leverage income verifications, fraud detection and decision science for credit risk models. However, similar to the evolution of paper to digital, a lot of regulatory mandates are dictating this first step. There are many auditors, so we’re also finding a mix of implementations where lenders implement these data technologies for funding as well as credit, along with document verification.

Furthermore, AI algorithms can automatically extract relevant data from documents, such as borrower information, loan terms, and vehicle details. Natural Language Processing (NLP) is particularly useful for understanding and categorizing unstructured data. Also, automated workflow management can assist in deploying automation tools that manage the flow of documents through various stages of the loan process, from application to approval to disbursement. Automation ensures that documents are routed to the right people at the right time, with minimal human intervention.

Traditional lending processes, often laden with manual tasks, are susceptible to human errors, which can lead to costly mistakes, inefficiencies, and customer dissatisfaction. This is a primary reason why lenders are embracing digital solutions integrated with AI, automation and machine learning, technologies that have been proven to modernize auto lending by significantly enhancing accuracy and reliability by reducing errors.

Digitizing the back-end document workflow process is a crucial step for subprime auto lenders looking to improve efficiency, reduce costs, and enhance customer satisfaction. By carefully planning and implementing AI and automation technologies, auto lenders transform their operations, ensuring they remain competitive in an increasingly digital world.

1: Informed.IQ Industry Survey Shows Where Improvements Are Taking Place In Leveraging Automation And AI For Lender Operational Efficiency; March 2024

2: Wolters Kluwer Industry Survey Shows Where Digitization Of Workflows Is Creating Greater Efficiencies; January 2024

Tim Yalich and Jessica Gonzalez
Tim Yalich and Jessica Gonzalez
Tim Yalich is Head of Motor Vehicle Strategy for Wolters Kluwer, and Jessica Gonzalez is VP of Customer Success, Lending at Informed.IQ.
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