The defi Team defi INSIGHT, Originations, Servicing Systems, Simplifying Processes

Technological innovation in auto lending has greatly enhanced customer experience in the sector. While many auto lenders have already automated their originations process, the servicing side often gets overlooked. Yet for savvy auto lenders who want to grow their portfolios through repeat business, digitizing the originations process is a good place to initially introduce innovation. In auto lending, servicing a loan is an ongoing relationship that’s measured in years, so it’s important for lenders to get this part right. This is especially true in today’s auto lending market, in which higher interest rates and recent inflation have combined to make financing vehicles more difficult for consumers.

According to the Dealertrack Auto Credit Total Loan Index, access to credit for an auto loan declined by 2.1 percent in December 2022, down 2.5 percent from the previous year. This resulted in tightening credit availability of all loan and lender types, with a lower share of subprime auto loans, shortened terms and increased downpayments. Even so, borrowers who were at least 60 days behind on payments had increased 26.7 percent over December 2021. With increasing rates of default, technological innovation in auto lending may seem less important. However, lending technology has evolved in a way that can help lenders deal with this, so it’s actually a good time for auto lenders to embrace innovation. In the auto lending sector, those lenders who can weather the storm will also do better in improved economic times.

Innovation in Auto Lending With AI, IVA & Omnichannel Technologies

Financial technology (fintech) has been a boon to lenders, helping reduce delinquencies in auto loans by improving decisioning processes, identifying fraud, and making lenders’ workflows more efficient. Artificial intelligence (AI), combined with machine learning algorithms, has already shown its usefulness in the loan origination process with automated decisions, helping lenders grow their portfolios while also reducing risk. Digital intelligent virtual assistants (IVAs) are increasingly found on lenders’ websites, ready to assist potential customers with frequently asked questions. Omnichannel technologies have also been helpful for lenders wanting to connect with potential borrowers. But all three technologies can be used to optimize the servicing phase of an auto loan or lease as well.

Servicing is a complex process that involves:

  • Assessing the condition and mileage of a vehicle at the end of a lease.
  • Remarketing used vehicles that have been traded in or reached the end of their lease period.
  • Repossessing and recovering vehicles from those who default.

Yet the most important part of the loan servicing process can be described in relatively simple terms—the collection of payments while mitigating potential losses. Using AI, IVAs, and omnichannel technologies can also increase the efficiency of the servicing phase of a loan, as these technologies have proven in originations. This requires introducing innovation in auto lending that makes lenders’ operations as efficient as possible.

During loan servicing, lenders are given a window into borrowers’ finances, creating an ongoing informational flow that allows them to be more proactive. AI technology can show historical cash flow patterns and estimate account balances on specific dates. This can minimize the chance a payment might be drawn from an account with insufficient funds.

Over the longer term, gathering borrower information can help lenders identify events that lead to cash flow issues, such as job changes, layoffs, health problems, unforeseen expenses, or any other issue that might affect repayment. In certain cases, a lender might even offer a borrower a way to avoid default through a loan modification. Such proactive measures serve to strengthen the relationship between lenders and borrowers, improving customer experience and, thus, the chance of repeat business.  

Artificial Intelligence in Auto Loan Servicing

Using this innovation in auto loan servicing, lenders can perform numerous customer service, collections, and other functions. Often AI works in conjunction with other technologies like machine learning, big data, and analytics to improve the customer experience.

AI tools can assist with loan servicing by:

  • Analyzing historical payment data to predict the borrowers most likely to fall behind on or make late payments.
  • Extract information from customer inputs to better evaluate and accurately recognize issues and, in certain cases, even provide suggested resolutions.
  • Flagging borrowers who skip or make payments inconsistently and reaching out proactively to resolve underlying issues.
  • Helping make contact with borrowers at times when they’re available by tracking historical behavior patterns to make communications more efficient.
  • Performing repetitive customer service processes once done manually through the use of chatbots utilizing natural language processing (NLP) technology.
  • Recommending actions through the use of machine learning algorithms in order to make informed decisions when managing accounts.
  • Streamlining workflows to reduce manual processing and paper documentation.

By facilitating a customer’s journey throughout the end-to-end loan process, lenders have a chance to develop a positive relationship, which will lead to more repeat customers.

Engaging With Digital Intelligent Virtual Assistants

A trend becoming increasingly used by lenders to keep down customer service costs is the use of digital IVAs. These AI-enabled virtual assistants allow lenders to automate outbound calls to borrowers. When it comes to calls relating to late payments or collections, some customers even prefer speaking with an IVA to avoid embarrassment. During the collections process, it can even offer borrowers various methods of payment, along with providing statements about any balances due.  

Some of the more common uses include: 

  • Welcome calls that inform customers who’s in charge of loan servicing or collecting payments and even answer frequently asked questions. These calls don’t generate revenue, so it makes more sense to automate them rather than assign a live agent.
  • Reminders to make payments that are soon due or already late. When a lender scales up the volume of loans it handles, this helps address the additional time needed for customer service without the need to hire more workers.  
  • Collections calls to recover delinquent payments, which can be paid during the call. Though this directly involves revenue, it’s very labor intensive, so utilizing an IVA is significantly less expensive for lenders.
  • Offers to sign a borrower up for an automatic payment service linked to a bank account or credit card, which ensures payments are made regularly. IVAs can explain the service, how it works, and even sign the customer up for the service.

When it comes to collections, an IVA can perform a number of steps in sequence. First, using pre-determined criteria, it makes an outbound call to a borrower, establishing contact and reminding them about the payment. The IVA then collects data on why the payment wasn’t made and other relevant information. If the customer is ready to make payment immediately, the virtual assistant verbally guides them through the process. If not, it encourages the borrower to make payment at the earliest date or even offers an alternative payment plan. The data gathered during the call is evaluated by analytics software that can schedule an auto-callback or transfer to a human representative.

Empathetic Omnichannel Collections

Collection efforts are never easy. And pairing the word “empathetic” with “collections” might seem a bit over the top. Yet many human collections agents successfully utilize an empathetic approach to collecting a debt. Utilizing omnichannel communications to reach a borrower in default is a good way to start this difficult conversation with a customer.

An automated approach through multiple channels to recover debt is indeed an innovation. In auto lending collections, customers can be provided with a list of options to resolve the issue. This can be done through multiple channels, including text, email, telephone, and other means of communication. Oftentimes, offering a customer options will turn this difficult experience that can often damage a lender’s brand into a positive customer experience that creates a loyal customer.

An innovation in auto lending, omnichannel collections can:

  • Create an experience for borrowers that brings an empathetic approach to collections and focuses on customer retention.
  • Engage personally with customers via a self-service approach that uses automated text and web support channels combined with options for inbound phone support for those who wish to speak to a live person.
  • Establish contact after a first missed payment to help prevent borrowers from going into substantial arrears.
  • Offer flexible options for payment rather than making uncompromising demands.

Using the right collections strategies will make it possible for lenders to collect on debts without alienating their financially struggling customers. A borrower given the chance to redeem themselves and who is provided with reasonable options will remember the experience. When that customer gets back on their feet, they’ll likely become a grateful and loyal customer.  

The right auto finance collections strategies are making it possible for manufacturers, dealerships, and automotive finance providers to deliver a premium collections experience for customers struggling to pay down the balance they owe. From the moment a customer misses their first payment to those who end up in substantial arrears, creditors need to prepare a toolkit of solutions to support consumers the right way.

Top Benefits of Digital Lending

While we’ve looked at only three areas of innovation in auto lending that can be utilized during loan servicing, the possibilities fintech offers lenders are nearly endless. Lenders should think beyond using fintech for just their originations, engaging customers as they repay their loans, and making their experience better. In doing so, lenders who embrace digital lending are bound to do better than their competitors as they will retain more customers.

Benefits of digital lending technology during loan servicing include:

  • Augments security through continuous upgrades and patches
  • Eliminates many operational obstacles like staff training and IT support
  • Enhances worker productivity
  • Improves customer retention
  • Increases profitability by freeing up resources to seek out new lending opportunities and markets
  • Largely eliminates paper processes
  • Provides safe and secure communication channels between borrowers and lenders
  • Standardizes and simplifies portfolio administration

New technologies that have yet to be implemented will no doubt steer innovation in auto lending, and companies like defi SOLUTIONS will continue to lead the way.

Getting Started

defi SOLUTIONS offers solutions for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in originations, servicing, and managed servicing. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information on innovations in auto lending and how defi can help, please visit www.defisolutions.

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