IS IT TIME TO UPGRADE YOUR AUTO LENDING PLATFORM?

For lenders who can’t remember when their current auto lending platform was originally implemented, it may be time to consider upgrading. Technology has advanced quickly in recent years, delivering improvements to the functionality of systems designed to streamline auto lending. Platforms have become largely cloud-based, with capabilities that dramatically improve loan origination efficiency, lower overall processing costs, and support well-informed decisions.

To help lenders evaluate whether an auto lending platform upgrade is overdue, it’s important to look at what’s necessary to successfully compete in the current market. In particular, there are three key aspects of a lending platform that are integral to processing an auto loan. Each of these provide compelling reasons to upgrade, but together they make an overwhelming argument for lenders to move to a modern auto lending platform.

Upgrade Non-Cloud Auto Lending Platforms

Cloud computing has radically transformed how businesses worldwide manage and use IT infrastructure and software. Utilizing a cloud-based platform significantly decreases costs associated with the procurement, installation, and management of servers, storage, and networks. Electricity costs also decline, particularly regarding the need to maintain a cool environment for sophisticated web servers and other IT infrastructure. Additionally, a lender’s IT personnel can then apply their talents to improving a lender’s efficiency rather than managing an on-premise auto lending platform.

Cloud-based systems offer elasticity in how they provide services, making them more scalable than on-premise solutions for auto lending. Platforms based in cloud servers are normally offered on a software-as-a-service (SaaS) basis, where a vendor uses a pay-as-you-go model to bill users. Using servers based in the cloud allows smaller lenders to access advanced technology that they couldn’t otherwise afford to employ on their own. It’s no wonder that cloud computing has become so popular, with an expected 80 percent of all organizational and mission-critical workflow moving to the cloud by 2025.

Cloud-based auto lending platforms offer the following benefits:

• Access from any place with an internet connection at any time.
  
  
• Capabilities for upgrading and updating software with the most recent improvements.
  
  
• Implementing cloud solutions, depending on complexity, often can be done in a matter of hours or weeks, rather than the months or years needed for lenders to develop their own unique on-premise solution.
  
  
• More advanced security measures than lenders could afford on their own, which also includes regular security updates.
  
  
• Outsourcing IT issues lowers the burden for a lender, as hosting, maintenance, and upgrades are done by the cloud provider.
  
  
• With fixed monthly fees, cloud-based auto lending platforms require lenders to make little or no upfront investments, allowing for more predictable overheads.

   

Cloud providers supply and manage IT infrastructure more cost-effectively than any individual lender can, saving lenders significantly on operational expenses. The flexibility of an auto lending platform based in the cloud opens up resources that make scaling up or down in response to economic cycles easier. For banks, credit unions, captive lenders, and other institutions involved in auto lending, platforms based in the cloud open up opportunities while lowering a lender’s costs.

Integration With Services

A cloud-based platform integrates easily with an ever-expanding range of cloud-based services to improve both efficiency, but also to support well-informed decisions on auto lending. Platforms based in the cloud allow easier integration than legacy platforms, which require extensive custom development when integrated with new financial technology (fintech). In fact, utilizing cloud technology allows lenders to quickly configure their auto lending platforms, customizing them to enable new fintech services developed in response to lending trends that weren’t in existence a decade ago.

Fintech services that can benefit an auto lending platform include:

• Alternative Credit Data enables lenders to use a range of non-traditional data like monthly utility, rental, and cell phone payments, along with tracking changes of address and employment history. When used in addition to traditional credit scores, it provides a clearer and more reliable picture of an applicant’s financial position.
  
  
• Trended Credit Data allows lenders to review up to 30 months of credit card payments, allowing them to see a more detailed and accurate picture of a borrower’s financial strength and spending habits.
  
  
• Fraud Analytics automatically reviews loan applications in order to identify misrepresentations on applications that often predict the likelihood of loan defaults. This may include incorrect information on employment or income, inflated collateral valuations, the use of false identities, or the possibility an applicant could be a straw borrower.
  
  
• Compliance and Risk services ensure auto lenders comply with individual state and federal interest rate regulations, as well as correctly determine loan calculations during origination.

These and other cloud-based services that support paperless loan applications and contracts, employment verification, and accurate vehicle valuations let lenders process auto loan applications more efficiently and confidently. Legacy auto lending platforms generally lack these competencies, putting lenders at a disadvantage and providing all the more reason to upgrade to a more easily configurable system.

Analytics Measures Efficiency and Profitability

As information is collected from applicants and throughout loans’ lifecycles, this accumulated data becomes a valuable resource from which lenders with the proper analytic tools can glean powerful insights. However, accessing this data via legacy systems often requires an in-depth understanding of how databases function. This includes how to properly sort and filter data to create reports, not to mention knowing about data schema and the importance of CSV (comma-separated values) files in database management.

Prior to the development of cloud-based analytics, this would require hiring database specialists able to provide the details loan underwriters and funders want, along with a lender’s management. This sort of investment in personnel may be doable for larger lenders, though it’s not the most efficient option. With cloud-based data analytics, even small lenders can utilize the data they gather to carefully evaluate and improve upon their operations.

When incorporated into an auto lending platform, analytics allows:

• Comparisons in delinquency rates which allow the identification of trends as to which borrower attributes and credit policies contribute to delinquencies.
  
• Determine which underwriters, loan officers, or credit analysts demonstrate the best judgment when it comes to overriding specific policies.
  
• Establish the proportion of overridden loans that have defaulted over a certain period of time.
  
• Evaluate auto loan distribution patterns over specific time periods to develop insights on certain segments of a lender’s portfolio, either individually or in combination.
  
• Flag a subprime loan’s terms when they may violate specific states’ regulations or laws on interest rates.
  
• Reveal applicant attributes for specific vehicle makes and models.

Modern auto lending platforms provide fully-integrated analytic capabilities that allow a lender to both create and customize reports. Insights developed from these analyses can then improve both a lender’s efficiency and profitability. These could include measuring a specific underwriter’s productivity, identifying bottlenecks during loan processing, or providing metrics on the performance of nearly every aspect of the loan origination process. Analytics also allows lenders to review portfolio performance for any lending tier or market segment while also identifying factors that correlate with delinquencies and defaults.

When analytics are fully integrated within an auto lending platform, a lender’s current performance can be more easily measured against historical trends. This allows lenders to accurately recognize how lending strategies and credit policies affect the performance of their loan portfolios. Such insights promote process efficiency, while reducing risks, enabling lenders to develop market strategies to expand lending opportunities without increasing risk.

Is It Time to Upgrade?

Lenders should ensure their current auto lending platform has the above capabilities. With the costs of on-premise IT infrastructure continuing to rise, it’s a good time for lenders to ensure their lending software ticks all the right boxes. If it doesn’t, it’s time to start the process of looking for a better auto lending platform. Whatever software package a lender chooses, it’s important that it offers the services necessary to compete. To do so, strongly consider an easy-to-integrate cloud-based solution with analytics capabilities.