We live in a world where 24/7 accessibility and instant gratification has become commonplace, and the automotive finance industry is no exception. Within the past several years, businesses, private organizations, government agencies, funders, and financial firms across a variety of industries have either considered going digital or have already taken their processes online.

As the electronic revolution continues to spread into all aspects of consumer and business-to-business activity, anything that can be digitized now must be digitized. For consumers who are habituated to completing even the most complex transactions online, ridding of the old-fashioned paper processes is crucial for businesses to stay relevant to their customers. And from a business point of view, a digital sales process provides expedited closings, less manual work and processing, greater information accuracy, and faster funding.

In terms of auto financing, many lenders and dealers are fundamentally changing their business models to adapt to rapidly evolving technological advancements. As we move through 2018, the use of eContracting by these companies will continue to drive major benefits in terms of both profits and streamlined operational performance. What’s more, this year, the industry will see a clear shift to digital contracting.

It’s more than a signature

So, what’s the difference between electronic and digital contracting? While the term “eContracting” commonly refers to the decisioning and document preparation, a fully digital contract experience encapsulates both the documents and the data to produce a fully executed digital contract that expresses the signing parties’ intent. Put simply, it includes a digitally signed electronic package with a complete events audit trail and the evidence of how and why it was executed. Furthermore, it is then encrypted using digital certificates and established as the digital original. The result of all this processing is a secure document that is tamper evident and meets the secondary market’s need for perfection. If any value in the source document is corrupted or maliciously altered, it can be easily detected by verifying the original signature and any attempt, erroneous or intentional, to double pledge is impossible.

Besides gaining efficiencies by removing paper and meeting the consumers’ expectations, the outcome of digital contracting not only exceeds the secondary market needs, but it continues to provide efficiencies and greater transparency for the life of the contract. The properly constructed digital process is arguably much safer than relying on paper systems that are subject to human error. In the long run, you will have assurance of the enforceability of your contracts via watertight signature processes.

In order to best prepare for these transformations, there are a few trends auto financers and consumers should be aware of.

Companies will continue to differentiate eContracting from digital contracting

2017 proved to be a tipping point, with many traditional players making bold moves in areas like customer acquisition and subscription models. Why? Because trends from other industries are permeating throughout the consumer market. Consumers’ behaviors are changing and what has been sacred is no more.  Not all experiments will succeed, but the fact that new models are being tested is a clear indication that change is coming fast.  Regardless of what “sticks,” there is a common thread that will underpin the winners: full digitization.

eContracting itself is not an entirely new phenomenon. In fact, industry leaders like RouteOne have booked more than 8.2 million eContracts to date, with over 6,600 active eContracting dealers that have access to 40+ finance sources to deliver a variety of financing options. Regardless of how a vehicle is purchased—online through alternative financing, via a car vending machine, with a subscription or at the dealership—a contract, whether signed with paper and pen, executed electronically or a complete digital package, is an integral piece of the equation.

Clearly, the industry is moving to the next phase of innovation, which is a truly digital contracting experience. And while the term “eContracting” is commonplace, it is important to highlight that pioneers have moved to a fully digital contract experience including documents and data—from document preparation, to signature, to the secondary market.

Customer satisfaction will drive alternative financing

More and more companies are launching services aimed at increasing the convenience of their products. Digital contracting is no stranger to this trend. For example, Ally Financial’s auto finance marketplace, Clearlane, is connecting lenders directly with consumers, providing financing options for automobiles. In fact, last year, Clearlane was able to facilitate faster transactions and improve their customers’ experience by implementing digital signature and contract management technology.

This trend is not lost at the dealer; in fact, dealers are most aware of consumer trends.  Many larger independent dealerships recognize the value of digitization and are making investments into it.  Despite concerns that consumers despise the dealership, they will still seek the human interaction.  What we know as the car buying experience today will also transform, with dealers moving away from a sales mentality and putting on consultant/advisor hats to provide an efficient and more personalized customer experience.

An increased investment in the transition to digital transaction management

In an effort to stay ahead of the curve of disruption, we will see more automotive financing companies make the move to cloud-based solutions. For many companies, this will involve overcoming hurdles including complicated contract requirements, need for possession of physical documents, and the potential need to convert back to paper in the future.

To address these potential challenges and transform with the evolving digital landscape, companies will begin to have conversations to refine key concepts in their business strategies around control, transferability, and legality. Meaningful questions vehicle finance leaders will look to address include:

  • How to support multi-channel sales with a single solution, insuring back office consistency?
  • How do we gain efficiency, compliance and transparency throughout our ecosystem of partners?
  • How will we adopt technology that will maintain our agility for future, rapid change?
  • How will our business processes need to adapt?

As mentioned earlier, this becomes even more challenging for dealers. As the tip of the spear, how they adopt and implement digital contracting will impact the whole industry: do it right and everyone wins. Misstep, and the outcome can be devastating.

Digital contracting will create a new realm of possibilities

For many companies that have struggled, postponed or written off the digitization opportunity, now is the time that they will revisit this conversation. As vehicle finance leaders transition to digital contracting, they will benefit from improved customer satisfaction, increased speed to funding and reduced costs for shipping and storage. Going digital is not only viable, it is imperative as it becomes the new industry standard.

Auto finance will continue to see significant digital transformations, and companies that experience the greatest success will be those that adapt with the evolving industry. The move toward digital contracting will only continue to accelerate the pace of disruption among key industry players.

About the Author

With over 20 years’ experience, Theodore Papailiou is a veteran of enterprise technology implementations. He has spent his time consulting and architecting complex solutions in the federal, financial and retail space, where he has focused on identifying and solving complex challenges always with a proven, documented value analysis and ROI.  Since 2014, as a member of eOriginal’s management team, Theodore has applied his experience to the ABS space, focusing on quantifying the benefits and value of Digital Transformation in this unique arena. He has focused on various verticals including, Market Place Lending, Equipment Leasing, Vacation Ownership and Automotive Finance where he consults with Originators, large Non-Prime Funders, Investors and Custodians, giving him a complete end-to-end understanding of today’s challenges. EMAIL: tpapailiou@eoriginal.com

Author: Theodore Papailiou

With over 20 years’ experience, Theodore Papailiou is a veteran of enterprise technology implementations. He has spent his time consulting and architecting complex solutions in the federal, financial and retail space, where he has focused on identifying and solving complex challenges always with a proven, documented value analysis and ROI. Since 2014, as a member of eOriginal’s management team, Theodore has applied his experience to the ABS space, focusing on quantifying the benefits and value of Digital Transformation in this unique arena. He has focused on various verticals including, Market Place Lending, Equipment Leasing, Vacation Ownership and Automotive Finance where he consults with Originators, large Non-Prime Funders, Investors and Custodians, giving him a complete end-to-end understanding of today’s challenges.

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