3 Ways to Future-Proof Your Auto Lending Program

According to the Cox Automotive 2019 Car Buyer Journey Report, the average consumer spends approximately 14 hours shopping for their new (or used) vehicle, with roughly 62% of that time being spent online.

Popular car buying platforms like Carvana and NowCar allow the consumer to shop, build and customize the exact vehicle they are looking for, obtain funding and complete the purchase 100% online in minutes. The vehicle is then delivered directly to their door, and the entire transaction is complete without ever seeing a car sales person or speaking to a loan officer.

As the dynamics of the car buying process for the average consumer continue to change and technology companies proceed to disrupt the automotive landscape, the need for credit unions to innovate and diversify their lending programs is more important than ever.

In order to remain relevant to members now and in the future, we must observe the behaviors and preferences of the new age consumer, and adapt our offerings and lending practices to continue winning their business.

Digital Transformation of the Auto Lender

With the consumer auto lending market reasonably divided in ownership between credit unions (21%), banks (30%), captive (30%) and finance companies (11%), according to Experian, credit unions have the opportunity to transform their auto lending programs and emerge as the auto lending leaders of the future.

Here are three ways to future-proof your auto lending program to grow market share, increase yield and position your credit union for long-term success:

1. Develop ubiquity in your market and deliver a frictionless experience. The increasingly competitive automotive dealer space has been hard at work – investing in their digital strategies and driving potential buyers to frictionless online shopping experiences. Potential buyers can now interact with tools such as 3D vehicle imaging and dynamic payment calculators, which give them more control over the buying process and incentivize them to move forward with the transaction.

This poses the question, are credit unions also delivering a top-notch digital experience when the consumer is shopping for a loan?

Here are a few important questions to consider as you evaluate your digital presence:

• Are we tracking when our potential members may be shopping for a new or used car?
• Are we visible when they are searching on Google for the best auto loan near them?
• Are we showing up in our members’ Facebook feeds after they have browsed local dealer inventory?

Furthermore, you must observe how the experience feels when the borrower arrives at your website and considers you for their auto loan:

• Can they get a soft credit pull pre-qualification offer with the click of a button?
• Can they put themselves in the buying mindset with a dynamic payment calculator?
• Can they complete the application and funding process online?
• Are you following up and onboarding new borrowers by leveraging text messaging and personalized video?

Today’s consumer has a wealth of information and funding options at their fingertips. In order to win business from consumers who are actively searching for a lender, having digital tools that allow them to take more control of the shopping experience is critical.

2. Leverage data-driven technology to diversify your portfolio and expand lending. While credit unions have been historically conservative in their lending practices, successful auto lenders in the future will need to take advantage of the increasing amount of consumer data available. Data can be used to expand lending parameters in order to increase yield in a direct lending portfolio.

Lenders will need to utilize one or more of the many decision engines (fueled by millions of data points surrounding consumer behavior and loan performance) available in the market to augment their approval processes and capitalize on segments of the member base they would not have serviced before. These tools allow you to strategically expand lending and maximize yield using risk-based pricing.

Evaluating loan applications with technology that leverages predictive analytics, such as “propensity to pay” and “likelihood to default” models, will allow your financial institution to expand lending and acquire new, more profitable members while mitigating risk.

Once new member onboarding is complete, leveraging an effective cross-sell strategy will allow you to deepen relationships with those members and increase penetration for other products and services that you offer.

3. Simultaneously work on your deposit growth and loan diversification strategies. Too often financial institutions neglect deposit growth when liquidity is healthy, only to find themselves turning away potential borrowers or borrowing capital themselves when liquidity is tight. The most effective way to manage liquidity is to build strategies for long-term organic deposit growth through your current and prospective member base. Financial institutions often find success partnering with a provider that specializes in deposit growth through member incentive programs or omnichannel marketing campaigns to drive new dollars to the institution.

Many of these providers offer success-based pricing models and can be held accountable for the deposit growth levels agreed upon during initial goal-setting sessions. This strategy is also a way to grow your millennial member base by offering rewards checking programs, which tend to carry a higher average balance compared to standard free checking.

Another effective method of managing liquidity while diversifying your loan portfolio is by leveraging a loan participation platform. A loan participation platform allows the financial institution to more efficiently manage its balance sheet by making loan participations executable within an online marketplace. When the participation process is standardized across all participants, the platform can automate the due diligence and lender servicing functions of the transaction. Developing competency with loan participations and taking the platform approach is a fantastic way to futureproof your credit union auto lending program and increase overall efficiencies in managing your balance sheet.

Digital Transformation Is Essential Across All Business Areas

The future of your credit union’s growth is dependent on your ability to innovate and transform in the digital age. Credit unions that take this on alone may struggle to keep up, and will likely be merged or acquired as we have seen so frequently over the past few years.

Successful credit unions of the future need to invest in cutting-edge technology and capitalize on the data analytics insights that surround their members. They will build a wide reaching digital footprint that creates frictionless experiences, no matter the product or service being marketed. Partnering with the right experts to deliver cutting edge products and services will help your credit union continue to thrive and remain at the center of your members’ financial journeys.

Jarrett Settles is a National Sales Consultant for Allied Solutions. He can be reached at jarrett.settles@alliedsolutions.net.