Why Your Electric Vehicle Lending Architecture Matters in the Current Market

Loan Origination Automation: A Business Case for Adopting Better Lending Technology

Electric vehicle technology and digital lending technology have both evolved since the beginning of the third millennium, with both technologies converging to create better consumer experiences. As electric vehicles have moved driving closer to an autonomous means of transport, so too has digital lending made consumers less reliant on the whims of people for decisions regarding their ability to borrow. The gathering of data by both technologies also makes electric vehicles and digital technology partner particularly well. Digital lending platforms facilitate such automated processes, gathering data that make end-to-end loan servicing possible, and, as such, they are quickly becoming a key element of the future of consumer lending.

Meanwhile, many lenders are positioning themselves for entry into the nascent lending market for borrowers wanting to purchase an electric vehicle. Lending architecture that allows consumers to utilize a single digital platform for all aspects of an auto loan will result in a better experience. Lenders who incorporate digitized end-to-end lending will benefit from this, which will enable them to protect and grow their revenue streams, significantly decreasing costs and enhancing lenders’ risk management capabilities. As such, the future belongs not just to the electric vehicle, lending architecture is also evolving in tandem to make buying this future transportation easier.


Going Digital: Creating Electric Vehicle Lending Architecture


For consumers who will require services that support electric vehicle lending, architecture that provides a positive digital experience will greatly simplify the borrowing process. These digital platforms will be at the leading-edge of this sector within the consumer lending industry. While traditional lending platforms require human involvement at every stage of the loan process, these digital lending platforms for electric vehicles will decrease the processing time and eliminate human error. 

The rapid adoption of end-to-end platforms offers the following benefits: 

  • Allows lenders to generate new business by decreasing the time it takes to navigate the loan origination process while also easing the time it takes to manage loans. 
  • Consistency in the loan approval process through the use of integrated data within a single loan origination system rather than depending on human involvement for decisions. 
  • Enables 24/7 secure digital access through cloud and mobile technologies for both lenders and borrowers. 
  • Increases security by introducing paperless procedures, including secure means for communicating, thus simplifying and standardizing the management of loan portfolios.
  • Lowers overheads through the saving of both time and money, increasing efficiency while removing operational impediments like staff training and IT support. 

According to a report by Grand View Research, the global market for these digital lending platforms approached $6 billion in 2021 and is predicted to have a compound annual growth rate (CAGR) of nearly 26 percent between 2022-2030. This would result in the digital lending platform market reaching $44.5 billion by 2030. Those lenders who adopt a singular digital platform will have an advantage over their competitors, as they will be able to comply with regulations more quickly, make faster decisions, and enhance the overall efficiency of their operations.  


The Growing Electric Vehicle Lending Market


Electric vehicles are quickly becoming more prevalent on the roads, and the proportion of those that are bought with financing is growing rapidly as well. According to Experian’s State of the Automotive Finance Market for the fourth quarter of 2021, financing for fully-electric vehicles has grown to 4.56 percent. This is up from 2.25 percent a year earlier and 1.34 percent during the same period in 2019. 

Though lending for fuel-powered vehicles will continue to dominate the auto financing sector for the foreseeable future, loans for these vehicles will comprise an increasingly smaller percentage. While fully electric vehicles are only a small segment of this financing, the loans for other alternatives to gas-powered cars, such as flex-fuel and hybrid vehicles are also growing. This segment was 15.91 percent of new vehicle financing in the fourth quarter of 2021, up from 11.8 percent a year earlier. 

Another factor that companies must consider is that consumers are more likely to purchase electric vehicles outright rather than lease them. Though this may change in the future, 72.3 percent of all new electric vehicles were purchased rather than leased. Additionally, the average monthly payment for new electric vehicles was $774 in the last quarter of 2021, while for this same period, payments for new cars overall were $639 monthly. Understanding these consumer preferences will help lenders make better decisions for financing vehicles that don’t run exclusively on fossil fuels.

Using Single Platforms for Electric Vehicle Lending

Saving time is the primary reason why auto lenders are turning to a single end-to-end lending platform. They’re designed to speed loan applications by enabling easier sharing of relevant documents while also helping lenders evaluate a potential customer in seconds or minutes rather than days or weeks. Using artificial intelligence (AI) and machine learning technology, the architecture of these digital lending platforms also allows lenders to quickly evaluate a borrower by calculating creditworthiness in order to reduce risk.

By quickly evaluating a borrower’s details, the platform also enables lenders to come up with the most appropriate loan terms, personalizing loans in a way that meets each specific consumer’s needs. It provides lenders with the capabilities to better identify fraud attempts within the system as well. Automating these functions not only accelerates the process of loan approvals and servicing but also saves considerably on cost. 

Customer Collaboration

This layering of technology by lenders helps them communicate with consumers to create solutions that best suit individual borrowers. Innovative new technologies gather data on each applicant, allowing them to collaborate to create an experience that’s geared towards their specific needs. Having a single platform on which this takes place enhances communications between lenders and their customers, along with improving workflows and smoothing processes for a lenders’ employees. 

New Platforms for Sustainable Electric Vehicle Financing

With loans for an electric vehicle, lending architecture needs to take into account more than traditional auto financing does for conventional vehicles. Purchasers of electric vehicles shouldn’t have to choose between what’s fiscally sensible and what’s sustainable. Though the average payment for vehicles was over $130 more than that for electric ones at the end of 2021, electric vehicle lending needs to consider the greater residual value that used electric vehicles will inevitably have. 

Auto lenders need to be innovative in their financial offerings too, in order to promote the sustainable lending options many electric vehicle buyers will want. This gives a potential borrower a digital platform that considers a consumer’s personal sustainability goals when applying for a loan. This will also encourage those considering an electric vehicle to enter the growing electric vehicle market, which looks to achieve an estimated value of nearly $1 trillion by 2028. 

New digital platforms for auto lenders will help increase the adoption of electric vehicles, as financing in the early 20th century allowed consumers to purchase conventional motor vehicles. But along with this drive for sustainability comes the very real advantages inherent in owning an electric vehicle. Lending architecture needs to take into account the much lower energy consumption and minimal maintenance costs of these vehicles, with these savings factored into any lending terms. For borrowers wanting to finance an electric vehicle, this new digital lending architecture offers several advantages for consumers.

Borrower benefits this technology makes possible include: 

  • Enabling loan decisions to be made in near real-time.
  • Keeping monthly payments to a minimum.
  • Managing payment settings from anywhere. 
  • Optimizing the electric vehicle’s efficiency by tracking battery health and mileage. 
  • Presenting unique financing options specifically geared to electric vehicles. 

With the combined data gathered by digital lending platforms and electric vehicles themselves, consumers will even be able to calculate their carbon footprint and how their purchase makes a sustainable difference.    


Using & Monetizing the Data


Possibly using data gathered from the new vehicle itself, lenders will also have access to information from the digital software applications used to support electric vehicle lending. Architecture that considers this data will assist lenders in making their systems friendlier to their customers while also improving scalability. In fact, the consumer financing sector is currently engaging with third-party contractors for a variety of business process outsourcing (BPO), including fintech that supports originations and servicing of loans.  

Such fintech makes processing and servicing auto loans easier for both lenders and borrowers. Cloud-based architecture already helps support many of these end-to-end lending solutions, streamlining business processes and promoting efficiency. Such digital platforms will become requisite in the consumer lending industry, enabling lenders to customize for specific requirements based on such things as compliance needs, currencies (including cryptocurrencies), geographical location, and language. Not only will this improve efficiency and customer satisfaction, this digital architecture will also assist lenders in managing risk.  

These new technologies have additionally allowed new players to enter the market, with captive lenders having an advantage over other consumer lenders due to their integration with the electric vehicle producers. Fintech providers are helping all lenders harness the power of data, however, so this advantage is likely to be short-lived. Already lenders wanting to enter the electric vehicle market are adopting innovative business models that will allow them to utilize new data-based revenue streams and even monetize the data itself to offer more customer-focused services.


Creating Partnerships


Technology is critical in electric vehicle finance, and none more so than that which allows lenders to employ data sensibly. For this reason, many lenders partner with fintech companies who can provide them with a means of analyzing data gathered during the loan application process while purchasing an electric vehicle. Lending architecture in the future will rely largely on these data analytics, which can show lenders which customers will benefit most from and be most likely to take up offers for specific services like auto insurance, automatic payment systems, digital wallets, life insurance, and add-on loans that allow consumers buying an electric vehicle to enhance their new purchase.


Getting Started


defi SOLUTIONS offers complete solutions for managing end-to-end loans or leases. Partnering with captives, banks, credit unions and finance companies, defi’s market-leading solutions help lenders exceed borrower expectations, including those wanting to support borrowers seeking to purchase an electric vehicle. Lending architecture provided by defi that digitally engages consumers throughout the application, origination and servicing of loans or leases will help lenders become more flexible, while allowing them to scale their services. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information, please contact our team today or register for a demo.

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