Expenses are up, returns on investment and equity are down, and it seems to be getting harder for small and medium-sized firms to keep up with industry powerhouses.
Those are a few of auto finance consultant and analyst Joel Kennedy’s general takeaways from the 2018 Non-Prime Automotive Finance Survey, which the National Automotive Finance Association released last month. So, why does Kennedy say he’s optimistic about the industry’s future?
In a word: technology. Looking at the rates of lenders adopting automation and other innovative solutions, Kennedy believes “the forecast for the future of auto lending is positive, even given the negative headwinds,” because “the industry is awakening to not just the potential of innovative tech, but more importantly in embracing the value of giving up direct control in order to step back and manage performance.”
Kennedy, a 20-plus-year veteran of the industry and the director of Spinnaker Consulting Group, believes that many of the current difficulties lenders face are small bumps along the journey to a faster, smarter, and more competitive consumer lending landscape. He maintains that although small and medium-sized lending operations can’t integrate innovative tech as cost-effectively as their larger institutional counterparts can, they can catch up quickly by outsourcing the “non-strategic parts” of their business. In other words, by using external tools and platforms to manage their most time- and resource-intensive processes, lenders of any size can go head-to-head with the big players.
Kennedy points out automation as an example of powerful technology any lender can use:
“Automation of credit decisioning, along with innovations in loan processing, is having a real impact in terms of faster turn times and reported reductions in the cost to process applications and contracts. When looking at the disintermediation of the middle man across the entire industry, I think we are just seeing the beginning of how far we are going to push it.”
However, he argues, too many lenders believe that automated solutions are incompatible with their compliance obligations:
“Non-prime financing sources have made meaningful investments and innovations in ways that benefit the dealers (increases in auto-decisioning, faster funding times), and customers via improved/expanded communications channels (email, text, mobile enablement). But a deeper look shows that the use of automated dialers, especially in predictive mode, is still only penetrating a third of the overall market. So, why would we be ok with expanding contact channels and not optimizing the telephone contact channel?
While not included in the Non-Prime Automotive Survey, it’s obvious to anyone in and around finance companies since the beginning of Dodd–Frank that the focus on compliance has resulted in increased operating expense and has been a guiding influence of strategic investments made in recent years. And, while many companies are taking the ‘foot off the gas’ as it pertains to compliance spend, I believe that we will continue to see restraint in activities that could result in any kind of ‘regulatory violation that becomes a class action lawsuit.’ To me, this is what explains the focus on innovations that are perceived as positive to the consumer, while auto-dialer innovation is not moving forward.”
If we didn’t know better, we’d almost think that Kennedy was making a pitch for Compli. Our automated workforce compliance management system takes the busywork out of compliance, so lenders can focus on strategically growing their business. Companies that use Compli rave about how they can demonstrate compliance, track their progress, and see opportunities to improve at a glance. As a result, these lenders find it easier to integrate new technologies, adapt to new regulations, and get their employees up to speed. Learn all about our consumer lending compliance solutions here.