By Jenn Reid, Head of Sales, Digital Lending – Motor Vehicle, Wolters Kluwer
Throughout the pandemic, there was an incredible amount of innovation and investments made to improve the consumer-facing retail transaction process and technology workflows, which has resulted in exceptional acceleration in the transaction becoming more digitized or at least digitized when it comes to the consumer-facing touchpoints.
However, while the ecosystem focused on technology-driven innovation to fuel the improved consumer experience, the less glamorous parts of the process, and many components of the processes between dealers and lenders remain largely paper-based, unsecure and inefficient or clunky. And even those systems that are using a more digitized process continue to suffer from a fragmented system using disparate technologies and platforms that severely hamper the broader experience for everyone involved.
As the next phase of automotive transformation happens, what will surface is an awareness of more improvement needed throughout the journey, particularly around paper used in the transaction. In today’s world, the use of paper in the automotive transaction is inefficient risk and liability. When you consider that according to recent data, consumers want to do everything such as go online to calculate monthly payments (53%), apply for financing (50%), select finance and insurance (F&I) products (41%), and review and sign the final contract (23%). In fact, three-quarters are open to conducting the buying process entirely online, it’s time to save some trees and invest in fully converting the use of paper to digital at the back-office level.
78% of franchise dealers say they’re willing to make changes to processes to meet customer expectations, which we have seen dealers do throughout the pandemic and we saw 69% added at least one digital step because of Covid-19. The top three processes added were test-drive home delivery, purchased-vehicle home delivery, and online credit application. It is time for dealers and lenders to lean in and commit to converting from paper to digital throughout the process to improve the experience, but also get ahead of the risks.
Lenders & Dealers Must Leave the Paper World
The use of paper is not only inefficient but also carries significant compliance risk. Examples include photocopies of customers drivers’ licenses sitting on the copier or a salesperson’s desk; Deal jackets sitting on an F&I manager’s desk with the door open to the office; And paperwork taken to the driveways of unverified customers for wet inked signatures. This results in customers with envelopes and throwing them in the glove box. Packages of contracts are sent to lenders via mail. And of course the backroom with years and years of deal jackets.
We still have a very paper-driven culture in automotive, wrought with risk and liability for everyone involved. We now need to shift focus to digitization as a solution for the risk and liability we have in the transaction around use of paper and management of original documents, to find end-to-end solutions that eliminate the need for paper.
Digitization of the entire process will solve several key pain points for the industry. First and foremost, digitization will significantly improve the risk and liability of exposed PII (personally identifiable information) in a paper-based environment. There are also major inefficiencies and added costs to manage paper, keeping up with revisions, etc. What’s more, a paper-based environment often results in outdated contracts used, which usually leads to lender rejections, and paper returned to the dealer which further increases the risk of exposure.
Lenders have recognized the importance of evolving from paper only, as seen with the emergence of eContracting solutions. This has been further promoted and incentivized by captive lenders to help more franchise dealerships to adopt. Lenders and dealers have seen significant enhancements here by way of faster processing, streamlined workflows and a more reliable, trusted document handling system.
Additional solutions exist, from digital signatures to leveraging digital vaults to protect who has access to documentation or digital transfer between the dealer and lender to get a contract funded. And ultimately, the ability for documents to be created so lenders can digitalize and securitize assets. There is a future of paperless and efficient processes that can be achieved in the ecosystem – backed by the security of a documented audit trail.
The next phase of digital transformation will leverage words such as e-contracting, multi-channel origination, digital certainty, auditing, document governance, security, post-transaction asset management and analysis tasks across all parts of the document journey. It’s not as flashy as the customer experience rally call of the past several years, but nonetheless critical for the industry to evolve to the next chapter of digitalization.
The Need for Purpose-Built Digital Ecosystems
To overcome these challenges, lenders, third-party providers and dealers are leveraging digital ecosystems that are purpose-built to handle the auto finance industry’s origination channel diversity, eliminating the complexities around managing various multi-channel assets post-execution, and drastically reducing operational and time costs.
This process allows for improved visibility of assets, quick expansion of the investor and lender pool, agility, and the ability to scale quickly and dynamically.
It also provides the assurance of legal and regulatory compliance, enabling lenders to securely manage digital assets throughout their entire post-execution lifecycle through an electronic collateral control agreement (ECCA).
This advanced process will offer centralized data management across an entire portfolio, allowing automotive professionals to view metadata across various origination channels and asset classes.
What’s more, it will help to control and track access, manage status changes, and transfer control of digital documents while utilizing sophisticated granular controls and permissions to allow for departmental separation and visibility. All of this will result in improved speed and process efficiency, and for lenders particularly it will free up capital through syndication, sale, or securitization.
With these enhancements, the industry can boast about its digital transformation on the front end of the consumer transaction, and also in the back office between dealers, lenders and regulators.
About the Author
Jenn Reid is Head of Sales, Digital Lending – Motor Vehicle for Wolters Kluwer, a global provider of professional information, software solutions and services for the automotive and auto lending industries.