Auto finance digitization has lagged other lending sectors, but the industry is working to catch up by updating legacy systems, working closely with dealers and establishing a culture of innovation.
"We have been slow to change because, for the most part, the model has worked," Shannon Mokhiber, vice president of U.S. brand and product marketing for Ford Credit, said at the American Financial Services Association's vehicle finance conference here Wednesday.
"There's recognition now that we can either change, or we can be disrupted," she said. Industry players are "getting their head around the fact that we need to go faster."
The auto finance space has been slow to innovate because of legacy, antiquated systems that prevent auto lenders from launching new products, said Mike Farris, COO of CarMax Auto Finance. Products can be delayed years when a lender lacks the right technology, he said. CarMax is revamping its system "so that we can move at a faster pace than we do today," he said. "I see that across the board."
Establishing a culture of innovation can propel auto lenders into a future-oriented mindset, said Mokhiber. Companies should encourage employees' experiments. "If they're taking smart risks, they can still fail and will be supported," she said. "That doesn't mean we're not holding people accountable. But it creates an environment that rewards them."
Auto lenders also should consider nontraditional hires, said Steve Braskamp, senior vice president of loan servicing for Capital One. "The amount of learning and knowledge you have to keep pace [with] is overwhelming at times," he said. "If you want to be a tech-oriented company, you have to go hire software engineers. It's not always smooth trying to blend these cultures, but you have to understand those points of view."
But there are headwinds to auto finance innovation, Braskamp added. "For me, it's one word. It's the dealer," he said.
Many dealers fear putting their profit model at risk with auto lending shifts, such as moving much of the financing process online. Much of a dealership's profit "is driven on the sale of back-end products," Braskamp said.
It takes companies that have launched robust omnichannel solutions, such as CarMax, AutoGravity, AutoFi and Carvana, to "slowly chip away" dealers' fear, he said.
Investment and trust in digital models are creating two types of dealers, Braskamp said: old-school retailers and progressive dealers. "And as a finance company, trying to develop and innovate products that work for both of those types of customers can be a challenge," he said.
Still, aligning with dealers is vital to lenders' success. Although many car buyers start the transaction online, most want to finish it in a dealership, said Mokhiber.
"There's still this comfort in that human interaction, that relationship they have with their dealer," she said.
