Why auto-finance providers need to shift their online offering into top gear
By Jerry Young (pictured), CEO, ieDigital.
There are many parts of the financial services sector that pride themselves on their high level of digital maturity.
Take the banking sector as an example. Most of us take the ability to service our accounts 24/7, 365 days a year, for granted. We can do everything from opening and closing an account to setting up a new direct debit, or even apply for a mortgage or personal loan at any time of the day or night, thanks to a high level of online functionality, be it through a website or mobile phone app.
Indeed, so engrained is online banking on the UK’s collective psyche that the numbers relating to its usage are eye-opening. Digital banking statistics show that a staggering 93% of UK people were using some form of online banking in 2022, with almost a quarter (24%) of British people now having a digital-only bank account in 2023 – a huge leap from only 9% in 2019.
However, not all parts of the financial services landscape are equal when it comes to digital maturity. While we are used to the banking sector blazing a trail when it comes to online functionality, other financial services players have been left playing catch-up, including the motor finance sector.
Motor finance – a core personal finance component
It is fair to say that motor finance is rapidly growing as a mainstream component of UK financial services.
Indeed, during 2022, the finance debt for new and used cars reached £40 billion per year, enough to raise concerns that increased numbers of consumers may default on their vehicle agreements amid soaring living costs.
Fast forward to the summer of 2023, and these soaring living costs show no signs of abating. Rising energy costs, high interest rates and a fluctuating global economy are all combining to place consumers under more financial stress than ever before. Indeed, multiple sources show that people are planning to borrow more because of this financial storm.
In March 2021, the Office for Budget Responsibility predicted that the total UK household debt would climb from £2,006 billion in 2020 to £2.354 billion in 2025, resulting in an average total debt of £82,641 per household in the United Kingdom.
Against such a backdrop, is it time the UK’s motor finance providers invested in the online tools that will allow customers to take full control of their finance agreements?
How fintech can aid motor finance providers
There was a time when people would sign hard copies of their motor finance agreement in the vehicle showroom – and then have nothing more to do with it. Other than making the regular payments, the nuts and bolts of the finance agreement were largely forgotten about, often accompanied by a degree of confusion about what to do when the agreement came to an end.
However, just as we all visited a high street bank once upon a time to make a deposit, times are rapidly changing in the motor finance world. With the amount of people borrowing money to purchase a vehicle expected to increase, lenders have a golden opportunity to re-write their customer service DNA and take some progressive action to match the user experience and functionality seen in the banking sector.
However, why should they? After all, if people want motor finance, they can still sign on the dotted line without the need for providers to make any form of investment in digital tools. While this is indeed true, the fact is that by not offering digital functionality, motor finance providers are potentially missing out on multiple opportunities.
Let’s look at the Personal Contract Plan (PCP) as an example. Once the agreement comes to an end, most customers have the option to make a sizeable final payment to keep the vehicle, or they can opt to “start again” with a new agreement relating to a new vehicle. A relatively simple online dashboard will enable them to take out a new agreement or, if they want to keep the vehicle but need to take out some form of loan to make the final payment, the option to take out such a loan could easily be an option they can choose and arrange online.
Furthermore, an enhanced digital offering enables providers to understand their customers a lot better. Whereas traditionally, motor finance has been led by the business manager at a dealership, someone who has a pile of other responsibilities too, the data can now easily be collated. It is there to analyse and can be used to design the products that exactly meet customers’ future needs. This is essential, as it will assist providers to move away from simply offering a general product to everyone and move towards the much more important model of offering specific products to specific people.
Online systems also provide important regulatory functionality.
They allow proof to be shown that stringent Treating Customers Fairly (TCF) guidelines have been adhered to. Motor finance providers can provide cast-iron proof that all details of an agreement have been shown thoroughly. This is especially important when it comes to dealing with vulnerable customers. All evidence can be given to regulatory authorities if needed, certainly far easier than if an agreement has been verbally explained in a noisy showroom.
How motor finance technology can help consumers
When it comes to the customer, the key thing is that a good online offering can provide the tools to service their agreements and gives them ownership over their financial affairs.
It gives them choices, and it provides them with the information they need at their fingertips to make an informed decision, in much the same way they take for granted when it comes to taking out a new savings account, loan or insurance policy.
When you consider the significant sums often involved, with expensive vehicles rapidly becoming the norm in both the new car and used car markets with the listing price going ever-skywards, is it not time to make such functionality the norm for lender and customer alike?
Conclusion
The banking sector arguably flies the flag for the wider financial services industry when it comes to online customer services channels and account functionality.
However, the time is now right for the auto finance sector to look at how it can enhance the journey experienced by its customers. The cost-of-living squeeze is expected to lead more people to take out some form of auto finance agreement – and motor finance providers need to look at how they can capitalise on this. They will also be providing their customers with a much greater level of customer service, which can only be a good thing for all concerned.
