Auto lending: Speed, ease, and digital, please
Members' desire for convenience is driving auto lending’s future.
Credit unions have been experiencing an auto lending joyride for the past few years.
The overall number of auto loans held by credit unions grew 22% from Q4 2015 to Q4 2017, according to CUNA Mutual Group. Over that same period, credit unions’ overall outstanding auto loan balances grew 28.7%.
While these results are impressive, a deeper dive into the numbers reveals some troubling trends:
• Between Q4 2015 and Q4 2017, the number of auto loans among credit union primary financial institution (PFI) members grew just 7%, while non-PFI member auto loans grew 44%, CUNA Mutual reports.
• The indirect channel accounted for 56% of all credit union auto loans in 2017, up from 43% in 2012. This is projected to grow to 61% by 2021.
This strong growth can be attributed to two sources that aren’t typically known for their long-term profitability: non-PFI members and the indirect channel.
Meanwhile, credit unions must also consider looming issues such as rising interest rates and falling pent-up demand.
However, the biggest influence on auto lending may not be rates and terms, but rather the growing importance of ease and speed.
Consumers crave convenience
Technology gives consumers quick and convenient access to vehicle information, which has caused buyers to alter their purchasing behavior. Now, car buyers regularly conduct research online and make a decision before even visiting the dealer.
As more consumers conduct research online, vehicle financing is responding accordingly. Historically, most lenders digitized only part of the loan process. But we’re now seeing a rapid advance toward a more complete digital end-to-end lending platform.
What’s driving this digital transformation? Fintechs and financial institutions recognizing the strength of partnerships.
As the Bank Administration Institute notes, “Fintech brings cutting-edge customer experience, speed to market, and an agile approach to keep up with changing customer needs. The [financial institution] brings the brand, customer base, balance sheet and regulatory framework.”
These alliances enable your competitors to develop streamlined lending platforms that incorporate the entire loan process—from application to decisioning and funding—all in a few fast and easy steps.
For example, take Marcus, a new digital lending platform from Goldman Sachs. It offers no-fee, fixed-rate loans up to $40,000 with funding available in as little as a day. In just minutes, borrowers can complete the simple process and be prepared to finalize their purchase at the dealership.
Applying artificial intelligence (AI) to credit scoring will enhance digital lending platforms. Moving beyond traditional attributes, AI will draw from vast amounts of data to identify and connect alternate traits (i.e., rent and utilities payments, browsing history, etc.) to form valuable insights and a more accurate credit risk model.
AI’s speed will mean quicker decisioning during the digital loan event.
As consumer expectations and preferences continue gravitating toward fast and simple, a fully digital experience will become the norm. Credit unions that have long relied on lower rates to attract auto loans will have to consider a strategic shift.
Don’t just deploy technology. Instead, work toward a simple and seamless digital model designed around your membership’s perspective.
This approach will help build your brand, deepen relationships with non-PFI and indirect borrowers, and attract more member loans. In fact, as of Q4 2017, other institutions held 58% of credit union members’ auto loans—representing an opportunity that may be greater than you realize.
The next generation of borrowers has an even stronger digital mindset. Their expectations will likely raise the bar for what you’ll need to deliver.