IHS Markit is leveraging its scale in the economic and technological worlds to help banks and finance companies navigate significant accounting changes coming within the next year.
The company announced the launch of its economic and financial scenario solution designed to help banks comply with the Current Excepted Credit Loss (CECL) estimation required under the Financial Accounting Standards Board (FASB) standard going into effect in 2020.
IHS Markit explained that CECL requires lending institutions to calculate expected credit losses using reasonable and supportable forward-looking macroeconomic and financial forecasts and report the losses on a quarterly or monthly basis. The company contends many firms lack the macroeconomic and financial forecasts, historical macro data and tools required to simulate the range of credit loss scenarios required by CECL.
The IHS Markit solution provides eight economic scenarios to help banks estimate future expected credit impairment, understand risks impacting credit losses and comply with the requirements under CECL. The scenarios are produced by the firm’s award-winning team of economists, using its proprietary, widely-respected macroeconometric model, applied by clients for forecasting and compliance purposes for decades.
“Our CECL solution provides the macroeconomic and financial scenarios and historical data to drive a firm’s credit loss estimates, whether produced in house or by a third-party,” said Chris Varvares, vice president and co-head of U.S. economics at IHS Markit. “It delivers eight transparent and comprehensive, probability-weighted macroeconomic and financial scenarios from our proprietary models and is able to be implemented across many vendor platforms firms already employ.”
Specifically, the solution includes:
— National macro and financial data: Historical and forecast data for eight scenarios at a national level
— Regional data: Historical and forecast data for three scenarios covering nine regions, 50 states and the top 100 metropolitan areas
The forecasts are provided over a 10-year horizon and are updated monthly. The scenarios are accessible through the Connect Platform from IHS Markit or able to be implemented across various vendor platforms.
The eight scenarios include the Macroeconomic Advisers by IHS Markit baseline forecast, representing the most likely scenario, three scenarios with better outcomes in terms of near-term growth and four scenarios with worse outcomes.
Among the current scenarios are faster growth/rapid productivity, boom/bust and global slump/financial crisis. Providing seven alternative scenarios can give banks options for choosing scenarios that best fit their needs.
Macroeconomic Advisers by IHS Markit was recently named the most accurate U.S. economic forecaster for 2017 by the Wall Street Journal and Focus Economics. Nariman Behravesh and the IHS Markit U.S. macroeconomic team also received the 2017 Lawrence R. Klein Award for forecasting accuracy.
For more information, managers and executive can listen to a recent webinar hosted by Varvares and the HIS Markit team.
While facing challenges on multiple fronts, report findings declared that changing customer behaviors and demands should be fueling change in the service and products retail banks are offering. Those assertions arrived as part of an in-depth study released on Wednesday by banking software company Temenos.
The report, written by the Economist Intelligence Unit (EIU) on behalf of Temenos and titled, "Whose customer are you? The reality of digital banking in North America," explored the developing fintech situation for retail banks in North America.
The regional report emphasized the need for North American retail banks to further embrace change by developing their digital marketing and engagement (cited by 53 percent of respondents) and improving product agility (cited by 49 percent).
The report also noted that when it comes to preparing for digital change, American banks, in particular, need to examine the experiences of Europe and Asia-Pacific in creating a one-stop digital journey for their customers. Authors found that those institutions with a global footprint especially can learn from Europe's open banking experience.
Although concerns about regulatory fines and recompense orders are higher in North America (56 percent versus 43 percent globally), the report pointed out there is space for banks to work together to overcome the confusing mesh of federal and state regulations.
The report goes on to note that banks in North America are already beginning to come together to collaborate — a necessary effort in order to build a truly modern banking system that supports innovation.
“North American banks need to be able to respond better to how their customers live now in terms of their digital offerings if they are to remain truly competitive against neo and challenger banks,” said Renee Friedman, editor of the report from the Economist Intelligence Unit.
Other key report highlights included:
—North American bankers see their current business model evolving to develop niche propositions for their clients, more so than their global counterparts do (71 percent versus 61 percent).
—More North American bankers (87 percent) believe that the platformization of banking and other services through a single-entry point will steer the market than their global counterparts (78 percent).
—Retail banks across North America are focusing their digital investment on cyber security (76 percent).
—North American bankers consider conforming to data protection and privacy regulation to be the biggest challenge their company faces concerning data and third-party access (31 percent versus 21 percent globally).
—North American banks’ innovation strategies are focused on investing in fintech start-ups (54 percent).
The Economist Intelligence Unit surveyed 400 global banking executives about the challenges retail banks expect to face between now and 2020, and the strategies they are deploying in response. Orchestrators said 51 percent of respondents were at C-Suite level and 10 percent were board members.
The North America report was based on 100 respondents from North America (the U.S. and Canada) and was supplemented with in-depth interviews with senior executives from leading regional banks.
“Though we have strict regulations in place, nevertheless disruption is happening here in North America. We are seeing exciting developments across the region as the banking industry explores what it means to bank in a digital world,” said Emily Steele, Temenos’ president for North America.
“Incumbent banks are setting up digital banks alongside their own operations, challenger banks are popping up, and now we are starting to see fintechs moving to become banks themselves,” Steele continued.
“Banks are awakening to the need to personalize and contextualize their digital products and services, and offer customers great customer journeys, in order to compete and remain successful,” she went on to say.
The entire report can be downloaded here.
Margin compression is here for the long haul. In 2019 and beyond, dealers will continue to face flattening new-vehicle sales and a growing affordability issue fueled in part by rising interest rates.
What’s more, the Q3 2018 Cox Automotive Dealer Sentiment Index identified credit availability for consumers and competition with other dealers as two of the top four concerns dealers feel are holding back their business. Given today’s tightening landscape, both economically and competitively, dealers are increasingly looking to their lender partners to work with them to do more to optimize processes to increase efficiency, streamline the car-buying experience and ultimately maintain profitability.
The changing needs of the consumer and how they want to buy a car is driving the need for a more seamless experience. Gone are the days where customers are willing to go through a long, drawn-out buying process — consumer satisfaction for how long the process takes at the dealership is now at just 46 percent, according to Cox Automotive’s 2018 Car Buyer Journey Study. Rather, they expect the same easy and technology-enhanced experience they receive across other verticals.
Consumers want to be able to start the shopping and even buying process online and finalize the details in-store. They want to be able to explore finance options, submit credit applications, pencil monthly payments and look into various interest rates online, away from the dealership. However, the ability to fully deliver on these steps for a smoother and faster process is contingent on how lenders integrate with their dealers.
To drive a more streamlined workflow, a starting point begins with lenders partnering with dealers to show up as early as possible in the process when engaging with the customer to help their dealers take advantage of more opportunities from the start. One strategy is for lenders to identify the different ways they are gaining originations and how these are or are not connected. Looking at the organization and makeup of these indirect loan volumes and the technology that supports them is a good place to start. Lenders can then optimize from there.
Furthermore, with the use of efficient tools like payoff quotes connected to title release, dealers can work hand in hand with their lenders to gain titles faster. This helps dealers move inventory quickly while getting accurate information on the title from the lender to ensure vehicle title details are correct. This is critical, as dealers pay an average holding cost of $32 per day, per vehicle that sits idle on their lot. In addition, long-standing proprietary research indicates that vehicles are nearly two times more likely to sell on the first pass through an auction lane when they have titles.
To drive efficiency in the deal completion process, dealers are looking for tools that can support an increasingly digital approach to car-buying, but they need their lender partners to do the same. According to the 2018 Dealertrack Lender Study, 54 percent of franchise dealers are utilizing digital contracting. However, 24 percent of dealers not using digital contracting are waiting for their lenders to offer it. As a result, it’s imperative for lenders to gain an understanding of the value digital contracting can provide to both their organization and their dealer partners. Working with technology providers and their dealers will help deliver the digital experience the customer expects, while also increasing customer satisfaction and dealer loyalty.
Everyone is in it together. By working closely with technology providers, lenders not only will be better equipped to support their dealers, but they’ll also see returns on their end as well.
Everyone wants car volume to continue to stay strong, more used and new originations completed, and customers getting into their preferred vehicles more quickly. These outcomes can be realized with a more digital-forward, streamlined workflow between dealer and lender that is supported by the right technology provider. This approach will ultimately lead to more deals, loyalty and cost savings for all parties involved.
Cheryl Miller is vice president and general manager of Dealertrack’s F&I solutions for both dealers and lenders, as well as the company’s full suite of registration and title solutions.
If Benjamin Franklin worked in auto finance today, he might amend his famous quote about nothing being certain except death and taxes to include “and compliance.”
Creditors and auto lenders must adhere to a dizzying array of federal and state requirements designed to defend consumers against predatory business practices. Such mandates are on the rise, leaving many lenders aiming to navigate the intersection of quickly evolving technologies and growing demands for data privacy. Failure to demonstrate compliance can lead to public embarrassment and business-breaking penalties including massive fines, lawsuits and even jail time.
Auto lenders seeking to protect both their customers’ rights and their own portfolios should ready themselves in one area in particular: global positioning system (GPS)-enabled, vehicle-tracking technologies installed in subprime-financed vehicles. Millions of these vehicles are already on the road and more join them every day. While incredibly popular, these technology-assisted loan programs are also drawing increased scrutiny from federal and state governments and the public to ensure that lenders treat consumers responsibly.
To succeed in this environment, auto lenders developing or reviewing their compliance strategies need to know three things:
1. The current regulatory landscape and public perception of GPS-enabled vehicle-tracking technologies
2. What they need to do to ensure compliance
3. That the providers of the vehicle-tracking systems they use are qualified and reliable
Current landscape
GPS-enabled technologies have helped revolutionize auto financing by permitting lenders to offer loans to many drivers who otherwise would not qualify. Each side benefits: Dealers can more quickly locate and reacquire vehicles from delinquent loan recipients, and recipients in good standing get the mobility they need and the opportunity to improve their credit scores.
The spread of these systems has raised compliance-related issues. Auto lenders must therefore be scrupulous in complying with government rules on proper use of GPS data as part of non-discrimination and other consumer protection practices.
Not doing so can have dire consequences. Regulators hold the end user of the technology responsible for protecting consumers. That means if a vendor mishandles data or otherwise fails to uphold compliance requirements, the finance company is liable. Knowing the buck stops with you makes knowing your responsibilities – and ensuring your technology provider does, too – essential.
Federal requirements
Auto finance organizations answer to many federal and state regulators, which dictate compliance rules and determine how auto lenders can use specific technologies, including GPS-enabled vehicle-tracking systems.
At the federal level, auto lenders must meet requirements from the Consumer Finance Protection Bureau (CFPB), created through the 2013 Dodd-Frank Act. Specific federal regulations that dealers must satisfy to avoid unfair, deceptive, and abusive acts and practices (UDAAPs) as defined in Dodd-Frank include:
● Equal Credit Opportunity Act (ECOA) Regulation B
● Fair Credit Reporting Act (FCRA) Regulation V
● Graham-Leach-Bliley Act (GLBA) Regulation P
● Truth in Lending Act Regulation Z
Dealers have to be aware of how international regulations such as the European Union General Data Protection Regulation (GDPR) could affect them as well.
State requirements
Maintaining compliance at the state level can be even more complicated than at the federal level. For each state in which they operate, auto lenders should understand and ensure they comply with:
● State regulations on GPS and vehicle-tracking systems
● Uniform Commercial Code requirements
● Requirements for communicating with loan recipients about loan terms, the capabilities of the technology and how it will be used
● Requirements for disclosure and penalties for nondisclosure
Additionally, auto lenders should know the positions of relevant state consumer protection agencies and state attorneys general on GPS-enabled technology.
Best practices
To achieve compliance at both the federal and state levels, auto lenders should:
● Ensure staff (both those installing the equipment and those using it) are sufficiently and regularly trained in the technology’s proper application
● Always disclose the presence of the technology in the vehicle, and clearly explain how and when it operates and the type(s) of data it collects
● Track and review complaints to identify potential risks to consumers or violations of law
Other best practices are available at resources including CFPB, the National Automobile Finance Association (NAF Association) and the National Independent Automobile Dealers Association (NIADA).
Choosing a provider
Dealerships need to trust that any technology provider they use — and especially those for GPS-enabled systems — understands current compliance requirements and can help customers more easily meet those requirements and mitigate risks. When shopping for systems, auto lenders should assess vendors’ preparation and transparency in answering key questions, including:
● What track record and product features do they offer related to compliance with federal and state regulations?
● How does the reliability, scalability and ease of use of their technology assist with compliance?
● How willing are they to work with customers on compliance audits and tracking and resolving complaints?
Armed with the right mindset and information, auto lenders can improve their ability to know a compliant solution when they see one and distinguish a good potential partner from a bad one. By doing so, you can focus on your core operations and boost customer confidence in your business, secure in the knowledge that you are protecting your customers and your portfolio from compliance-related risk.
Bill Caan is national sales manager for CalAmp, a telematics pioneer leading transformation in the connected vehicle and industrial internet of machines marketplace.
Mingled within rounds of Thanksgiving feasts, consumers likely will be purchasing an array of items, confidently leveraging discounts from a variety of retailers.
But when it comes to buying a vehicle during the holiday weekend, Capital One Auto Finance found that consumers aren’t as confident as they are when purchasing towels and televisions.
Based on a recent survey conducted by Capital One Auto Finance, the finance company indicated consumer concerns over the current vehicle-buying process — including transparency, time issues and overall confidence — could keep them from bringing home a vehicle for the holidays.
Three highlights from Capital One’s survey included:
— Only 6 percent of respondents find the vehicle-buying process completely transparent.
— Only 20 percent of respondents feel very confident when shopping for a vehicle.
— Sixteen percent of respondents say they are “a boss” when it comes to negotiating during the vehicle-buying process.
The survey of 1,002 U.S. adults ages 18 and older and was conducted on behalf of Capital One Auto Finance using Engine Insight’s Online CARAVAN omnibus. Of the 1,002 participants, 693 did not work at a dealership or ad/public relations company, have purchased a vehicle in the past, are planning to get an auto loan or ever had one.
The survey was fielded on Oct. 15-17.
“The car-buying process does not need to be a source of stress. And this current state of trust and transparency in car-buying needs to be addressed,” said Jeff Rabinowitz, managing vice president, Capital One Auto Finance.
In response, Auto Navigator by Capital One is designed to provide a digital inventory of millions of vehicles from thousands of participating dealerships across the nation so consumers have all the information needed to confidently find and finance a purchase.
Auto Navigator can support consumers by allowing them to see if they pre-qualify for financing with no impact to their credit score, saving them both angst and time before heading to the dealership.
“Capital One is dedicated to helping consumers feel confident throughout their car-buying journey,” Rabinowitz saud, Auto Navigator and our Auto Learning Center make the car-buying process easier and more efficient for today’s consumer.”
For more information about Capital One Auto Navigator, visit www.capitalone.com/cars.
As much as iPads, artificial intelligence and consistently updated software proliferate auto financing, the J.D. Power 2018 U.S. Dealer Financing Satisfaction Study released this week maintained just how important people remain.
J.D. Power found that dealers are leaning heavily on the credit staff and sales reps as they covet immediate funding and problem resolution within the dealer finance industry. Across all finance company segments (luxury captive, mass market captive and non-captive), J.D. Power determined that the personal relationship is the heaviest-weighted driver of satisfaction.
“If lenders can ensure credit staff is readily available and knowledgeable, they will see a boost in dealer satisfaction,” said Jim Houston, senior director of the automotive finance practice at J.D. Power.
“Satisfaction declines by 163 points, on a 1,000-point scale, when dealers are not able to reach the credit staff,” Houston continued. “Additionally, if lenders can communicate the best contact for dealers to reach out to for non-traditional questions, the resolution time decreases, which will, in turn, increase dealer satisfaction.”
The 2018 U.S. Dealer Financing Satisfaction Study is based on responses from 4,476 dealers and was fielded in April and May of this year. The study measures dealer satisfaction in four segments of finance companies:
— Non-captive
— Captive mass market
— Captive luxury market
— Floor planning
The non-captive analysis evaluated the dealer/finance company relationship across three factors: relationship, provider offerings and application/approval process.
In the captive mass market and luxury segments, four factors were evaluated: relationship, provider offerings, application/approval process and lease return.
Three factors were measured in the floor planning segment: relationship, portfolio management and provider credit line.
Study rankings
In the captive luxury segment, Mercedes-Benz Financial Services ranked highest in overall dealer satisfaction, raising its score by 4 points year-over-year to 976, followed by Audi Financial Services at 944 and Infiniti Financial Services at 942.
“We are very appreciative of the dealers who took the time to complete and submit this year’s survey and are grateful for their vote of confidence and support. It is a privilege to work with a dealer body that is delivering the ‘Best or Nothing’ to their customers, and we are flattered that they consider us the benchmark among luxury captive retail credit providers,” said Geoff Robinson, vice president of Mercedes-Benz Financial Services.
“Our commitment is always to listen to feedback from our dealer partners and use it to identify where we can continue to improve in our quest to deliver exceptional experiences to them and our mutual customers every day,” Robinson continued.
In the captive mass market segment, Volkswagen Credit came in ranked highest in overall dealer satisfaction at 956, followed by Subaru Motors Finance at 928 and Nissan Motor Acceptance Corp. at 901.
“Making it easy for our dealers to do business with us is key to our strategy. We are pleased to be recognized by J.D. Power as we strive to be the best automotive finance company in the USA,” VW Credit chief executive officer Horst Meima said.
“Supporting our dealers is our top priority, and we are proud to be a good partner,” Meima continued. “Our goal is to exceed expectations in all areas of customer service, and we will continue to evolve and refine our approach to best suit the needs of our dealers.”
In the non-captive segment, Citizens One Auto Finance took the highest market in overall dealer satisfaction with a score of 921, followed by TD Auto Finance at 917 and Chase Automotive Finance at 869.
In the floor plan segment, TD Auto Finance led the way with a score of 994, followed by Mercedes-Benz Financial Services at 989 and Volkswagen Credit 984.
“Floor plan is a cornerstone of our national growth strategy in automotive, and these results indicate that we’re on the right track,” said Greg Braca, president and chief executive officer of TD Bank. “I’d like to thank all of the dealers that provided us with the opportunity to respond to their feedback. Our vision is to Be the Better Bank, and the team is excited to see how we can leverage these insights to provide even greater value to our dealers.”
Andrew Stuart, president and chief executive officer at TD Auto Finance, added, “We recently expanded the floor plan offering nationwide, and we’re pleased our customers see value in what we are delivering.
“The floor plan product is a vital piece of a dealer’s business, and it’s especially exciting to see high scores in the relationship components of the study that reflect TDAF’s focus on the dealer experience,” Stuart went on to say.
Experian Automotive reported that credit unions held 21.3 percent of the market share of all auto financing after the first quarter of this year, up from 20.0 percent a year earlier.
And GrooveCar released a white paper this week in hopes credit unions can boost that share figure even more.
GrooveCar highlighted the white paper entitled, “Drive Auto Loan Growth with Interactive Member Engagement,” contains valuable information and guidance for credit unions as they embark on engagement strategies, lead generation and loan capturing activities.
The company explained the white paper was produced after nearly a year of research and development, pulling together industry trends and best practices into one cohesive document. The purpose of the white paper is to educate credit unions on the new approach to auto financing growth. It explains how offering more than just rates will boost profitability, becoming part of the lasting approach to auto portfolio growth.
The white paper includes in-depth overview of:
• Engagement strategies
• Lead generation features and descriptions
• Built-in resources
• Auto loan growth
The GrooveCar Direct program has had successful partnerships with credit unions for over a decade bringing members, credit unions and dealerships together into the vehicle buying process. This experience and unique view of the industry helped shape the white paper.
“GrooveCar was one of the first companies to optimize this online process. We knew early on a digital presence could capture the first spark of interest in a member as they looked to purchase a new or pre-owned vehicle,” said Robert O’Hara, vice president of strategic alliances at GrooveCar.
“This program benefits our credit union partners’ relationship with their members while enhancing the overall performance of auto loan portfolios. The white paper is loaded with actionable insights that won’t disappoint,” O’Hara continued.
What has worked in the past may not continue to work in the future. GrooveCar is looking to inspire credit unions to look at auto loan growth activities differently. When adding an auto resource, a credit union will now find itself competing on a higher level than ever before.
The white paper explains how the journey to the point-of-sale can start with a focus that doesn’t have to be dependent on rates alone.
“Too often we want to only concentrate on what happens at the end, when financing happens, overlooking the long road to the sale and other opportunities that can be missed,” O’Hara said.
This comprehensive white paper discusses the importance of lead generation, a great tool built into the program designed to keep your credit union relevant throughout the buying journey. This feature is found in many popular places members seek out, and credit unions will gain greater insight into the role it plays and how to manage.
“Lead generation is designed around great content found throughout the platform; the white paper explains in detail the methodology behind these features for loan growth and engagement,” O’Hara said.
The white paper can be downloaded here.
