Questioning Technology Trends in US Sub-Prime Auto Finance

4 questions with Jonathan Dodds, White Clarke Group CEO Americas, on technology trends driving the US Sub-Prime Auto Finance industry.

Without getting too incredibly technical, what are the primary components software must have nowadays that’s used to facilitate auto finance originations?

Not to oversimplify, but essentially all auto finance software products have very similar core functionality or components due to the very nature of the industry, and equally attribute their market value to catchy terminology such as: “flexible, seamless to integrate, scalable, innovative, rules-driven, customizable,” sounds familiar, doesn’t it? I think we can all agree, the stronger the individual components, combined with reliability, the better the overall solution. Beyond the obvious, the most critical aspects of originations software have become security, compliance and generally how components fit, or can be configured, into the finance company’s lending strategy and existing processes. In fact, many lenders are rightfully starting to put these aspects at the top of their requirements list. Ideally, providers should be able to exhibit service accountability, through certifications such as SSAE16 and when providing hosting solutions offer levels of security ranging up to full Tier 3 Data Center capabilities (including ISO27001 and PCI certifications) commensurate with the finance company’s risk tolerance.

Less obvious is the approach we see adopted in many other countries, the ability for a single provider to deliver a full borrower, loan and collateral life-cycle process. Whether driven by third-party oversight rules, desire for greater efficiency or intensified demand for delivering the best possible dealer and consumer experience, lenders as much as regulators are pushing software capabilities to the next level. In this respect, we see greater emphasis being placed on performance, processing capability and adaptability for lenders looking to stay ahead of the technology gap.

Once software is out in the marketplace, what is prudent protocol with regard to maintenance and potential updates?

Establishing a standard release cycle creates a routine for all internal departments (development, QA, documentation, communications, etc.) and also client stakeholders. Giving product-centric teams the ability to evaluate, justify and prioritize system enhancements in partnership with clients helps support the internal protocols required to produce flexible solutions that are readily configured by the client and meet the needs of an ever-changing and evolving industry.

More common these days, regulatory changes are dictating updates and maintenance requirements. For example, the CFPB, at least for now, publishes effective dates for regulatory changes. Providers should be working in conjunction with those regulatory deadlines to schedule software updates, ensuring the flexible solutions being offered can be tested by the client with sufficient time for training on new functionality.

What do you see as the No.1 technological hurdle the auto finance industry has to eclipse and why?

Right now a big buzzword is Cyber-Security. A perfect example of this, New York State coming out with the recent onerous cybersecurity statute, requiring financial firms to adhere to minimum IT security standards. Financial institutions may struggle to meet this demand if their systems are not flexible enough to adapt to the required changes. As technology providers, we have a responsibility to ensure our solutions adhere to uniform and proven best practices, such as the National Institute of Standards and Technology (NIST) Cybersecurity Framework. There are many other examples like this that should encourage our industry to engage more than ever before. Some statutes or rules are viable to address within a timeframe, and others more challenging. The more we support our trade organizations and each other, the larger our voice, and the greater our ability to partner with rule makers to design requirements that are good for the consumer, the lender and the companies developing platforms that both rely upon.

Security and regulatory challenges aside, those who develop methods for immediate decisions as the standard vs. premium, and deliver the most seamless, customized and exceptional customer experience, will be those who come out on top. Technology providers are charged less with figuring out what it looks like, and more how it can be optimally configured and deployed in each unique lending strategy – direct, indirect, partner programs.

What might be the next advancement such as blockchain technology that could impact auto financing most going forward?

Blockchain, Cloud, digital transformation, mobile access, artificial intelligence… it is up to the software community to stay abreast of leading technology possibilities to ultimately provide the tools that keep lenders competitive, profitable and compliant. Still, even with the FinTech disruptors, dealer relationships (whether indirect or direct lending) will likely remain a key component of success. Any technology that enhances the dealer, user, and borrower experience will undoubtedly prevail. Artificial Intelligence (AI) will certainly be at the forefront of this innovative frontier as financial institutions are able to better manage the entire lifecycle of the borrower and collateral by providing new avenues of communication and customer service. Financial institutions are facing unprecedented advancements in technology while maintaining stable, secure operations. It’s an interesting balancing act, and I’m sure we will see strong partnerships continue to form throughout our industry as a result

Top reads