Eddie Castillo, general sales manager for the subprime division for Pine Belt Cadillac in Toms River, N.J., described how much a customer who has completed financing online prior to coming to the dealership improves the entire delivery experience — especially for consumers with soft credit histories.
Castillo relayed his experience as SpringboardAuto released results of a new survey that determined consumers want to finance their vehicle online and doing so significantly improves their overall car buying experience and perception of the dealership where they take delivery.
The survey, conducted among consumers who have recently financed a vehicle online with SpringboardAuto for the purchase of a vehicle from a dealership, provides a snapshot of how consumers’ impressions of dealerships improve when they can complete financing online before setting foot into the dealership and shows a significant positive impact on CSI and retention.
When consumers go online to get the financing wheels in motion, Castillo said, “You don’t go back-and-forth with the customer going over their credit or some of the very sensitive areas that sometimes can affect the situation. So now, they look at the car, they like the car, we agree on a price — and it’s an easier and more comfortable experience.”
The survey, conducted online in November and December, asked consumers to compare their perceptions of completing financing at the dealership versus completing it online prior to purchase. The result?
Customer satisfaction with the dealership increased on average by more than 100 percent when they completed their financing online as evidenced by them being likely/highly likely to:
| |
Financed online |
Financed at the dealership |
| Give a high CSI score |
63% |
27% |
| Recommend dealership to friends |
55% |
28% |
| Return for service |
49% |
28% |
| Return to dealership for next purchase |
47% |
21% |
| Post a positive review |
40% |
18% |
The majority of those surveyed also reported that the finance experience online was easier and more pleasant and hassle-free than what they had experienced previously at a dealership. They stated that what they liked best is the ability to do it all online, followed by not being rushed and having more control over personalization.
The survey also made clear that these consumers have been hampered by fear when heading to a dealership for financing, and that fear is fueled by lack of information and feeling disempowered.
“It comes as no surprise that consumers want to feel more empowered and more informed during the auto financing process — and that they want to do it at their own pace. What is especially striking is that if they have that opportunity, their positive feelings about their dealership skyrockets,” said Jim Landy chief executive officer and founder of SpringboardAuto.
“With today’s technology providing multiple platforms that enable consumers to complete financing online and, in many cases, qualify for financing they may not otherwise be able to get through a dealership’s F&I process, the opportunity for dealerships is significant — especially if that platform is seamless, and easy-to-use,” Landy continued.
“Dealerships gain where it counts most to their bottom line: in service visits, loyalty, positive word of mouth — and that critical CSI score, all while saving time spent on financing paperwork,” Landy went on to say.
SpringboardAuto shared several other data highlights from the survey, including:
• Overall, customer perception of dealership increased in favorability by 115 percent as measured by likelihood to return to dealership, give a 5-star rating and recommend to friends.
• The financing preference of the vast majority surveyed is to go online prior to visiting the dealership: 86 percent versus 5 percent who want to do it in the dealership.
• These are not finance newbies: Eighty-one percent have financed via the dealership in the past.
• Eighty-four percent found the dealership financing experience frustrating and time-consuming, while only 16 percent found the experience hassle-free and convenient.
• Ninety-two percent said that working with an online financing platform was easier, more pleasant and hassle-free than their previous dealership finance experience.
• Respondents cited being able to complete financing online (82 percent) as the thing they liked most about the process, closely followed by not feeling rushed and being able to proceed “at my own pace” (80 percent) and more control over personalizing the contract (72 percent).
• Eighty-one percent said concerns about their credit score had held them back from financing via dealership in the past.
• The No. 1 reason why was, “I was unsure if I could get approved and I had no idea what my payments would be/what I could afford.” (77 percent)
• More than half said: “I did not want to be embarrassed at the dealership by being rejected.”
• Just more than two-thirds said: “I feel that my low credit rating means a dealer will take advantage of me.”
• Getting the best interest rate and term trumps all else, including experience, for top priority in auto financing, with pleasant and hassle free coming in second.
Landy added that, while there will always be consumers who want to finance in the dealership, today’s customer is increasingly looking for more control and personalization in the experience and to do it digitally — and that this is particularly true among millennials.
Auto finance companies and dealerships integrally involved in underwriting might have some kind of vehicle-history component embedded into their scorecards and other tools.
However, Black Book on Tuesday rolled out what the vehicle valuation company believes is its most precise tool yet — it’s VIN-specific History-Adjusted Valuations, an analytics-driven process for determining the impact a vehicle’s history has on its value.
Today when valuing a vehicle, Black Book contends that automotive industry professionals check the vehicle’s history report and make an “unscientific, educated guess” as to its impact on the vehicle’s value.
“This is subjective and problematic, as it often leads to mistakes in valuation,” Black Book said. “Making an inaccurate estimation on appraisal values can decrease margins for a dealer, as well as increase losses for auto lenders.”
Black Book has leveraged its advanced analytics capabilities and deep editorial expertise to bring insight into precisely how a vehicle’s historical events impact its value. The company insisted this development is critical since a recent survey of automotive professionals indicated that 96 percent of respondents feel a vehicle’s history has a moderate to significant impact on the value of a used vehicle.
Black Book’s creation of History-Adjusted Valuations analyzes multiple factors and events in a vehicle’s history such as number of owners, vehicle usage, accident and accident severity, title issues, flood/hail/fire damage, CPO history, and other variables that are not obvious when physically inspecting a vehicle.
“We are providing our customers a competitive advantage by precisely valuing a vehicle based on its VIN-specific history," said Jared Kalfus, executive vice president of revenue at Black Book. “Whether appraising a trade-in, bidding at auction or valuing a vehicle portfolio, precision drives profit, growth and customer satisfaction.”
Black Book’s customer promise is to deliver ever more precise valuations. On average, History-Adjusted Values are 31 percent more precise when compared to the auction transaction price than valuations without a history adjustment included.
“The evolution of data and analytics continues to have a profound impact on the overall auto industry, from dealers and remarketers, to manufacturers and lenders,” said Anil Goyal, executive vice president of operations at Black Book. “Our analytics play a significant role in recognizing the patterns in a vehicle’s history and determining their impact on each vehicle’s value, enabling our customers to make better decisions.”
To learn more about Black Book’s new History-Adjusted Valuations, call (800) 554-1026.
On Tuesday, Fiserv finalized a partnership with TransUnion to improve price, decision accuracy and expand the customer base within the automotive finance space.
Officials highlighted integrating the automotive loan origination system from Fiserv with CreditVision Link from TransUnion will help increase precision of scoring and risk modeling.
By including additional data points to evaluate credit applications, Fiserv explained that finance companies can better identify high-risk and high-opportunity consumers, including emerging credit populations often overlooked or denied by lenders due to insufficient data in traditional credit files.
“Understanding the customer is critical not only to making informed business decisions, but to also build and nurture customer relationships and loyalty over time,” said Steve Chaouki, executive vice president and head of TransUnion’s financial services business unit. “Our integration of CreditVision Link trended and alternative data sources into Automotive Loan Origination System enables lenders to score approximately 95 percent of the U.S. adult population.”
CreditVision Link leverages new alternative data sources to its risk scoring analysis, including address stability, checking account history, microloans/ alternative lending and property ownership. Fiserv has implemented a select number of trended and alternative data scores, which include up to 30 months of historical information on each contract with actual payment history and amount borrowed over time.
The companies pointed out that there are currently 60 million underserved consumers who potentially can now be scored, as well as expanding the super prime customer base by 23 million.
“The most successful auto lenders prioritize the needs of their customers while managing risk exposure,” said Shaimaa Elk, chief information officer for lending solutions at Fiserv. “The partnership between Fiserv and TransUnion enables lenders to provide borrower-focused customer service and better optimize profitability, cost reductions and efficiencies.”
More details can be found at fiserv.com.
Among seven executive changes made by Toyota across its North American operations, two involve top leaders at the automaker’s captive finance company.
Effective Jan. 1, the company said in a recent announcement that Scott Cooke will be group vice president and chief risk officer at Toyota Financial Services (TFS), where he will have responsibility for risk management across the Americas region, dealer credit and information security.
Furthermore, the OEM indicated Cindy Wang will be group vice president, treasury, at TFS in Plano, Texas, where she will have responsibility for leading Treasury and Vendor Management Office (VMO) business units within Toyota Motor Credit Corp. (TMCC), including responsibilities for Global and Americas Region Treasury.
The other announced changes include:
—Susan Elkington is named Toyota Motor Manufacturing, Kentucky, (TMMK) president in Georgetown, Ky., where she will have responsibility for all manufacturing and administrative operations.
—Kent Rice is named group vice president quality at headquarters in Plano, Texas, where he will have responsibility for promoting overall North America Toyota Quality direction including Product Quality and Service Support.
—Sean Suggs is named Toyota Motor Manufacturing, Mississippi, (TMMMS) president in Blue Springs, Miss., where he will have responsibility for all manufacturing and administrative operations. He also will assume the role of TMMMS Administration vice president.
The company also highlighted a pair of retiring executives, including:
—Wil James will retire in February after completing more than 30 years of service. He most recently served as TMMK president in Georgetown, Ky.
—Bob Waltz will retire on Jan. 11 after completing more than 32 years of service. He most recently served as group vice president of Product Quality and Service Support (PQSS) in Plano, Texas. He will serve as executive adviser of PQSS until his retirement.
“These appointments will bring new insights into strengthening Toyota’s ability for more collaboration enterprise-wide, helping us respond more quickly to the market and our customers’ needs,” said Jim Lentz, chief executive officer, Toyota Motor North America (TMNA).
Craig Schleicher of PwC sees robotic features having a much greater presence in auto finance in the not-so-distant future. No, C-3PO and R2-D2 from Star Wars likely aren’t taking over underwriting and servicing vehicle installment contracts, but the manager of consumer finance at PwC described how robotic process automation (RPA) can be a good thing.
Schleicher is set to discuss RPA and other cutting-edge developments during his Used Car Week general session on Nov. 14 as the industry gathers in Palm Springs, Calif., for the annual gathering of thought leaders, operators and executives that touch all segments of the used-vehicle space.
During a phone conversation with SubPrime Auto Finance News earlier this week, Schleicher noted that two technology developments are percolating in auto finance; one within the customer-facing business segment and those connected to finance companies’ internal workings.
“On the customer side, the quality of inventory data and VIN level information has really changed the interaction model for a lot of lenders and allowed for direct to indirect conversion where lenders are presenting vehicle options and financing options on their website and becoming a lead referral source for their dealer partners, which really changes the dynamics of indirect lending,” Schleicher said.
“On the internal side, I see robotic process automation as something that has been adopted significantly in a number of other industries that auto finance is just starting to dip its toes into. To me, it has really significant potential to increase the efficiency of the back-office operations across the entire loan lifecycle,” he continued.
Before you open an online search engine to learn about RPA, check out how Schleicher succinctly explained the technology in two sentences.
“RPA you can think of as software overlay that works a lot like an Excel macro that also works across multiple different programs,” he said. “It combines an easy user interface to design programming with technology like optical character recognition to make it easy to automate repetitive tasks that are highly manual without having to go through a full system integration.”
Schleicher explained that one example where RPA could be impactful in auto financing is how the technology could produce review capabilities of contract documents against what is contained in the loan origination system. And not just a sample, but 100 percent of a portfolio.
PwC delved into the connection of RPA and auto financing through a project that’s available here. Schleicher will be elaborating on the topic more during his session at Used Car Week, and will also cover specific processes where RPA could enhance how finance companies operate.
“I’m really excited for the presentation because I think we’re going to take a strategic lens on some of the elements of auto finance that don’t get the publicity that they deserve,” Schleicher said. “We’re going to take a look at how lenders can start to think strategically about opportunities for innovation across the loan life cycle to improve their performance in the servicing and collections function specifically.
“One of the areas I’m most excited to talk about is I think there is a real opportunity for lenders to change how they think about the collections function from being just a loss-prevention tool to something that’s part of their bigger strategy and supports their overall goals of customer retention, loyalty and satisfaction,” he continued.
When finance company executives have down time, perhaps they can delve into the Star Wars series of motion pictures; maybe robots can make their institutions more compliant or profitable.
“I also think there is a big opportunity and the need for continued evolution in the technology to improve the customer experience,” Schleicher said. “I expect that the pace of change in auto finance will be much greater over the coming years than it has been.”
No doubt, finance companies are looking for whatever reliable piece of information they can examine while they’re first deciding if they should make an auto finance offer to a potential vehicle buyer and then exploring what terms and down payment should be leveraged.
So what about using someone’s social media profile? After all, Experian cited data from Statista that indicated 81 percent of Americans have a social media profile in 2017, up from 78 percent last year and 24 percent back in 2008.
Before the underwriting department starts to tap Facebook to go along with paystubs, Experian cautioned the industry in a recent blog post about the potential pitfalls of social media profiles ever being used in a credit decision. Analysts’ reasons included:
1. Experian said, “There is that little rule called the Equal Credit Opportunity Act, which states credit must be extended to all creditworthy applicants regardless of race, religion, gender, marital status, age and other personal characteristics. A quick scan of any Facebook profile can reveal these things, and more. Credit applications do not ask for these specific details for this very reason.”
2. Experian added, “Social media data can also be manipulated. One can ‘like’ financial articles, participate in educational quizzes and represent themselves as if they are financially responsible. Social media can be gamed. On the flip side, a consumer can’t manipulate their payment history.”
While using social media information still might not be used in underwriting anytime soon, Experian reiterated that there are other compliant avenues finance companies can take to ensure the best possible paper is coming into their portfolios.
“In the meantime, other sources of data are being evaluated. Everything from including on-time utility and rental payments, insights on smaller dollar loans and various credit attributes can help to provide a more holistic view of today’s credit consumer,” Experian said.
“There is no question social media data will continue to grow exponentially. But in the world of credit decisioning, the ‘like’ button cannot be given quite yet,” Experian went on to say.
FactorTrust finalized a partnership this week with leading analytics-driven marketing consultancy, DataLab Data Solutions (DDS), which couples high-quality, clean data with deep analytics and model development, giving its customers the best opportunity for successful targeted marketing programs.
The addition of FactorTrust’s 275 million transaction records aids the analytics expert in executing that process to identify key prospects.
FactorTrust’s alternative credit data is designed to augment DDS’s existing, robust inventory of data records.
“By adding FactorTrust’s real-time data, we are enriching our inventory and making it even more comprehensive,” DDS chief operating officer David Flam said. “This data provides additional insight not only into consumers with strong credit profiles, but also can help identify new consumers who may not otherwise receive firm offers of credit or insurance; our assets together provide the most complete profile of consumers, enabling our customers to grow their marketable universe.”
Maryland-based DDS uses its network of data points to build response and conversion models to help guide customers in making targeted marketing selections.
“FactorTrust is pleased to side with industry innovators like DDS,” FactorTrust chief executive officer Greg Rable said. “By using FactorTrust’s alternative credit data, DDS is harnessing the unique and predictive capabilities of alternative credit data in their lending processes, and their customers are benefitting and extending proper fitting offers to consumers.”
Ford Motor Credit and ZestFinance recently announced the results of a study that measured the effectiveness of machine learning to better predict risk in auto financing and potentially expand auto financing for millennials and other Americans with limited credit histories.
As a result of the study’s success, Ford Credit said it is developing plans to implement machine learning credit approval models to further enhance its consistent and prudent lending practices across the credit spectrum.
“At Ford and Ford Credit, our primary goal is to serve our customers,” Ford Credit chairman and chief executive officer Joy Falotico said. “For this study, we worked with ZestFinance to harness the capability of machine learning to analyze more data and to analyze our data differently.
“The study showed improved predictive power, which holds promise for more approvals, enhanced customer experiences and even stronger business performance, including lower credit losses,” Falotico continued.
The captive explained that Ford Credit’s proprietary models have performed well for decades. The machine learning study compared results from a Ford Credit scoring model with a machine learning model developed by ZestFinance, using its underwriting platform to do deeper analysis of applicant data.
Ford Credit and ZestFinance found that machine learning-based underwriting could reduce future credit losses significantly and potentially improve approval rates for qualified consumers, while maintaining its consistent underwriting standards.
According to the Consumer Financial Protection Bureau, 26 million American adults, or about one in 10, have no credit record, making them difficult and often impossible to underwrite using traditional methods. This includes millions of millennials who are also part of the fastest-growing segment of new car buyers.
Although these consumers may have steady jobs, officials insisted their creditworthiness is heavily based on credit history. This makes it more difficult for companies to provide financing, and they could miss an opportunity for revenue growth.
Last year, the captive pointed out that new vehicles purchased by millennials represented 29 percent of all U.S. sales, and that number is expected to grow to 40 percent by 2020.
“Machine learning-based underwriting will be a game-changer for lenders, opening entirely new revenue streams. Millennials offer the perfect example. They are typically a good credit risk and are expected to command $1.4 trillion in spending by 2020, but many lack the financial history needed to pass a traditional credit check,” ZestFinance founder and CEO Douglas Merrill said.
“Applying better math and more data to traditional underwriting illuminates the true credit risk and helps forward-looking companies like Ford Credit continue to grow their businesses while predictably managing their risk,” Merrill added.
The companies also highlighted that machine learning tools can analyze data more deeply and in more detail. They also are capable of “learning” over time, for example, by proposing changes to variables as patterns evolve or emerge, or by recognizing and incorporating macroeconomic changes into their assessments.
ZestFinance is now offering the Zest Automated Machine Learning (ZAML) Platform, which it developed specifically for credit underwriting. ZAML uses complex algorithms to analyze thousands of data points to provide a richer, more accurate understanding of all potential borrowers, delivered in an easy-to-use Web interface.
The ZAML Platform consists of three components: data collection and assimilation, machine learning modeling tools and transparency tools that enable companies to explain credit decisions.
“The work with ZestFinance exemplifies the innovation efforts at Ford Credit to support Ford Motor Company and its customers,” the captive said.
“Financial technology is key to many of these efforts, as fintech can contribute to an even more seamless and better personalized vehicle financing experience for consumers,” the company went on to say.
Psychographic analysis involves the study of how people live, what interests them and what they like, according to the American Marketing Association.
Equifax auto lending sales leader Craig Sims acknowledged finance companies are leveraging psychographic personas in order to target specific consumers with appropriate offers to use on their next vehicle purchase. But when it comes to using psychographic information during the underwriting process, Sims explained most finance companies are stopping short of making it an integral cog of their scorecards.
At least for now.
“My understanding of psychographics is that it’s different from the traditional demographics, who you are, where you live and where you work, but instead looks to quantify why you do the things you do, your attitudes and opinions and values,” Sims said during a recent phone conversation with SubPrime Auto Finance News.
“The place we seeing it show up most of the time in auto finance is really on the marketing side of things as we look at who they’re targeting for a particular product,” he continued. “I think it’s becoming increasingly relevant in auto finance as we seek to understand who folks are and what their attitudes are about things like their car payment.”
And where that attitude could surface is through a consumer’s activity on social media sites such as Twitter or Facebook. But Sims noted a place where it might even more relevant — and verifiable — is when the applicant states income and employment information.
Whether potential deception is intentional or not, Sims mentioned that how close to accurate that income and employment information is that the consumer shares could be a predictor of repayment.
“I think auto lenders are beginning to dabble in it a little bit,” Sims said. “Where you work and how much money, you make might fall into that more demographic type that we’re used to looking at from an auto perspective. But one of the things we find out is people who overstate their income on an application turn out to be higher risk. What does that also tell you about their behavior and attitudes?
“We’ve certainly seen some anecdotal studies that people who either overstate their income or overstate their tenure are higher risk compared to people who are truthful about these pieces of information,” he continued.
Sims indicated that Equifax’s volume of business involving income and employment verification is up by 24 percent since 2015. And the 2017 pace is on track for 32 percent growth.
But while income figures might be hard data finance companies can verify and use, Twitter hashtag frequency doesn’t exactly fall into current regulatory categories established by federal agencies.
“Particularly given the regulatory era we live in, folks tend to be pretty conservative when bringing these new data elements in,” Sims said. “The jury is still out on whether it’s going to lead to fair lending concerns and things like that. Who knows what happens if you were to look at someone’s Twitter feed and considering that as a part of the underwriting decision? Folks seem to be sticking with the more traditional demographic data points. But these behavioral indicators could show if people are being truthful on the application.
“Some of these things that you might consider psychographic are details that lenders in the underwriting space have been doing for a long time,” he went on to say. “They look at someone’s bureau and the resident history and employment history and try to formulate a picture of how this person behaves and how they might continue to behave in the future.”
No matter what data and information finance companies leverage, speed to a decision is paramount, according to Sims, especially with consumers want to complete delivery as quickly as possible.
“We hear this recurring theme from lenders and dealers that decision time is a key metric for everybody because we’re trying to streamline the process, get customers in and out the door in an hour or less,” Sims said. “The more pieces of data and the less human intervention we need in underwriting, the quicker you can turn around and hopefully more painless for the consumer.”
While the industry might not be there yet, more frequent use psychographic analysis beyond marketing campaigns could land in underwriting and originations.
“Lenders are looking for how to paint this whole picture of this consumer,” Sims said. “How can I get past just the credit bureau to really understand how someone will behave if you were to extend that auto loan? It’s just a question of how confident are they that the things they’re looking at aren’t going to run afoul with the regulators.”
On Friday, FactorTrust announced the addition of Lobel Financial to its growing list of financial service companies implementing its alternative credit data into their credit decisioning process.
Lobel Financial, a finance company specializing in purchasing and servicing vehicle installment contracts from independent and franchised dealers, is using FactorTrust data in a custom scorecard to augment other in-house credit strategies.
The company selected FactorTrust to implement its alternative credit data to help them achieve more lift and better separation of good and poor credit performers.
“We looked closely at what FactorTrust could offer, and decided that its many attributes, delivered in real-time, would help us best reach our goal of establishing enhanced segmentation for the development of our new internal scorecard,” Lobel Financial president Harvey Lobel said.
Lobel Financial joined finance companies such as National Auto Lenders leveraging FactorTrust’s information.
“Using alternative credit data is a proactive choice for industry leaders like Lobel Financial, who are faced with the challenge of effectively and intelligently managing risk on the underbanked market,” FactorTrust chief executive officer Greg Rable said.
“The addition of FactorTrust’s proprietary data opens up their options in determining the best credit performers for their business. It allows a complete picture of consumers, who are often considered credit invisible, but are really just credit inaccurate due to lack of data,” Rable added.
