The Next Big Innovation in Auto Manufacturing? Finance
FinTech companies are moving into the automotive space, and for good reason: the financing of auto purchases fails to meet the consumer’s expectations. What’s more, these tech companies realise that by innovating the finance process, they can build life-long relationships with consumers. Auto brands with financing arms should take note.
FinTech companies see two main opportunities in the auto financing space. First, the financing experience is too arduous, with many brands requiring the would-be buyer to complete paperwork and submit copies of tax returns and pay stubs to the dealership itself. Yet consumers want a fully digital experience, one that allows them to secure financing first, and then select the car they want. The other is subscription services, which Tesla and BMW are pioneering. These brands have implemented services that allow for the activation of new features within a vehicle on a subscription basis. This paves the way for in-car purchasing, which savvy auto financing companies can leverage to build long-term relationships with people.
In-Vehicle Shopping Will Soon Be a Reality
Right now the only way to make any purchase of goods and services from within a vehicle is via a mobile phone, but Apple CarPlay and Android Auto will change that. CarPlay allows users to connect their iPhone with their vehicle’s display or dashboard screen so that it looks and works just like the app screen of the phone itself. There are some safety features built into CarPlay. For instance, it won’t allow drivers to send or receive text messages from the screen. All in all, it is setting the stage for a vehicle’s display screen to become so much more than just a control panel for the car’s entertainment system.
Imagine this scenario: a consumer applies for a loan from Honda Financial to purchase a car. At the same time, they apply for a line of credit or even a Honda-branded credit card. That card or line of credit can be used to pay for all in-car purchases, which can be made through the dashboard screen.
What are borrowers likely to purchase? First, they can purchase services from Honda itself (think: BMW letting drivers activate heated seats for $18/month). There are a whole host of in-car features that consumers may want to use occasionally, such as cruise control when embarking on a road trip. A services model allows the Hondas of the world to continue nurturing the customer relationship long after the car has left the lot.
Now imagine using that same line of credit or Honda-branded credit card for other purchases, such as gasoline, charging, or paying for drive-through meals. Imagine an app, selected from a Honda app store and accessible from the dashboard screen, that allows drivers to track miles and purchases for work, down to the client level, to streamline their expense reports or business tax filings. Imagine an app that tracks driving habits, which drivers can then send to their insurance companies in order to obtain better rates.
People tend to stick with the same brand of mobile phones when they upgrade because they like and are accustomed to apps they’ve installed. I can see the same phenomenon occurring with cars once there is a robust apps store for each brand (a development that seems inevitable to me).
In order for the Honda Financial organisations of the world to succeed, however, they must first perfect the experience of applying for loans, and ultimately credit cards. What makes for a great experience? First and foremost, it’s one that is 100% digital from start to finish. If Honda Financial needs to see my tax return or pay stub, fine, but allow me to take a photo with my phone and send it that way.
Next, adopt the Quicken Loans approach, where first I secure the financing and then I go shopping for a vehicle. Once I decide which car I want, the check is cut and sent to the appropriate dealer. This is far more relevant to the consumer than many in the industry may realise.
Or, even better, integrate the financing into the checkout process. Manufacturers can follow established processes in retail, including an option to open an account in order to apply for quick financing using a Buy Now Pay Later (BNPL) model. Consumers can choose their car, hold it with their down payment (or an acceptable portion of it), and then start applying for financing. I see opportunities here for targeting in-house financing to consumers or partnering with traditional financing institutions to give consumers a menu of finance sources, all integrated into the single checkout process
Who Will Own Finance Experience?
Auto brands are the natural owners of the finance experience, especially as they can tie in so tightly with the purchase process. However, banks are part of the new experience as well, particularly for those auto brands that either have established partnerships or plan to engage new partners to bring in necessary scale, buyers, or offerings. Going further, the combination of auto brand plus internal financing or partnering is what can ultimately activate the "Honda" card, points, or rewards, leading to payments loyalty.
To lead the market, however, auto brands need more than finance innovation. Experience is equally important, meaning it will be the combination of finance and experience that differentiates the brand and cements customer loyalty.
The services and app-based models are still in their infancy, which means there’s still time for auto manufacturers to lead the innovation (and benefit from the opportunity to cement long-term relationships with consumers).
In a few years’ time, I’ll be ready to purchase a new car. Whether the check for it comes from the lending arm of a manufacturer, or a FinTech company that moves into the space, will depend on the lender's appetite for innovation.
Eddie Chin brings his 15 years of financial services consulting experience to the intersection of experience design, solution development, and financial services. In his role at Rightpoint, he helps his clients use experience and design to innovate and solve strategic and technology challenges. Eddie joined Rightpoint as part of its acquisition of TandemSeven, where. He led engagements with clients in consumer banking, commercial banking, wealth management, and corporate banking.