defi SOLUTIONS in Non-Prime Times


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When I talk to customers, they often worry about using SaaS (software as a service) or a popular hosted technology tool will “lessen their competitive advantage or give away their secret sauce.” Many of them think they are better off building their own internal technology solutions, rather than buying them from technology experts. This always makes me scratch my head because these same people know that no two auto lenders are the same, and that the programs they deliver to the market are only as good as the people and service they back them up with. However, I continue to hear this again and again so l thought it would be a great topic for this article.

Smart lenders know they have to differentiate themselves in the market to gain a competitive advantage and to stay relevant to their target customer. They also know they must continue to build on that advantage or followers will copy it. After all, what most lenders sell is money. That money provides purchasing power now in exchange for more money later, which is merely a commodity. As such, lenders must look to items beyond the transaction itself in order to stand out.

Where l grew up, the world of subprime auto finance, we held a belief that our scorecards and technology were the differentiators that we had to protect and enhance. This worked well for many years, but it all seemed to come apart when technology started moving forward at what seemed like the speed of light. Auto lenders found they we could not even begin to keep up. We were not able to find and keep the highest performing technology workers, much less buy and implement the newest technology systems.

It was very frustrating to know that smaller and much less established lenders could get and implement newer, faster and smarter technology than we (established industry leading auto finance companies) could and become more efficient in a matter of months. Fortunately, things are changing for the better and it is an exciting time to be in auto finance. We have several small and large lenders realizing that they can achieve differentiation when they couple their knowledge of the industry and customer with the newer technology tools now readily available in the market.

We have known for a long time that you can give the exact same hammer, wood, nails and saws to different home builders and the houses they build will be very different. The real value is in the strategy, planning, execution and service they invest in and provide to their customers. It is the same with lending. I am personally happy to be getting to see auto lenders realize and embrace this knowledge.

Knowing that the technology and analytic tools are now readily available, it is time for lenders to take a hard look at the technology and tools they have in their “tool shed.” To keep and gain advantages you have to change the way you look at technology and realize that using the newest tools like SaaS and analytics modeling out of the box can become an advantage, rather than expose an existing advantage.

The first logical step lenders should take is to determine if it is really their core competency to build and house all their software and tools internally or not. According to research from Gartner Inc., in 2013, banking and financial services rank second among all industries in terms of the size of the IT budget to revenue at a whopping 6.3%, therefore, the build vs. buy decision can make a big difference in profitability. Certainly, most lenders would love to get a few hundred basis points out of the IT budget and into the profit line. With SaaS and other hosted solutions the buy options could end up significantly lower in cost. The IT costs related to insourcing systems and hardware can be complicated to understand. Lenders are very adept at knowing how many underwriters, funders and desks we need, but ask us how many gigabytes of storage, database administrators and interfaces to third- party data sources we need and we may struggle to answer. Ask us exactly how much each costs or should cost and we really struggle!

Gartner predicts that by the end of 2015, 35 percent of enterprise IT expenditures for most organizations would be managed outside the IT department’s budget. In auto finance we often find ourselves lagging in technology adoption so it will probably be only the savviest of lenders that embrace this movement and reap the profit rewards first.

Back to the issue of competitive advantage, what is your formula for differentiation? Your success in achieving your difference should not revolve around what technology and tools you have in house or hosted, but how you use it. Just because your competitors may have purchased the same system or tool doesn’t mean they can do what you can with it. Here are three examples I see in my business every day that proves this very thing can be as easy as 1,2,3.

  1. Same data, different filters—All auto lenders pull basically the same third-party data from the credit bureaus and valuation services. It’s how they use that data that allows them to win market advantage. Advanced technology provides easy and fast access to the data so they can cull and present data in ways that are unique to their programs. Flexible technology makes it easy to leverage data from various outside sources in exactly the time and way you chose so you can set your company apart from competitors.
  2. Same features, different configurations—We know that competition is tough and growth is stabilizing so savvy auto lenders are looking for ways to be more efficient throughout the loan origination process. Knowing this, lenders are leveraging automation tools to auto decision and structure deals to get more efficient. This allows them to spend valuable human time on the highest value activities while the technology handles the rest. They all do it slightly differently to match their risk and program tolerances, but the best are doing it and finding ways to try new things and implement them quickly.
  3. Shared integration, different models—Lenders are hosting and outsourcing processing systems that have already integrated with the data tools they need. This allows for shared IT costs to integrate (one interface to the data source) and all the lenders using the system can take that data and use it in their own way or in a model that works right for their program. Their time is spent on building and perfecting a model, not building and testing interfaces.

It may be time to ask if your differentiation plan is letting you spend your precious time and talent on the right things. If not, then as one of my good friends often says, “There is no wrong time to get off the wrong path.”

Stephanie Alsbrooks is CEO and chief differentiator, defi SOLUTIONS.

As published in January/February issue of Non-Prime Times.

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