Partnerships extend the capabilities of software and services providers, offering solutions for the critical problems of clients. In solving for these problems in the past, defi has built our own solutions and services. But we can’t do it all or do it on our own, nor do we want to. So, increasingly we partner.
In today’s conversation, Susan Price, defi’s director of partnerships, discusses the value of partnerships — to our clients and partners — and the role of partnerships in the future of defi SOLUTIONS.
Susan’s answers have been edited for clarity and concision.
Talk a little about defi partnerships and the great breadth of problems covered for current and future clients.
At the heart of it, the intent of partnerships is to drive maximum value for clients, partners, and defi. We want the roadmaps of the three aligned. Then we can collaborate in a way that’s mutually beneficial for all three parties.
A lot of what we do involves aggregating and consolidating data, but not solely. defi’s extensive partnership network gives clients a breadth and depth of information from a variety of sources and we make that actionable to our client base.
With all of the permutations and complexity, there is not necessarily a single provider with a single solution that appeals to everybody. There are dozens of sources for identity and fraud solutions, but they’re each doing things differently. The differences may be based on segment, product, or geographical market.
What partnerships bring to bear is the ability to incorporate the information from those various sources and capitalize on their strengths, the things they’re known for in the industry. One of these partners could likely to be a client’s preferred, based on their own unique problem they’re trying to solve.
Our clients also benefit from our partners’ core knowledge. If a client asks us, “What are people doing about AML (Anti-Money Laundering) or fraud prevention?” We can recommend multiple partners that can address their needs. We can set up a call and get on it with them. Our partners are the experts in that space and we’re able to bridge the gap and stay involved in the discussion. This gives our clients confidence and makes our suite of products and services stronger and more advantageous for clients.
And, full transparency, our partners can recommend us to in-market lenders when we have a readily available existing integration and we’ve demonstrated our expertise to them.
How do partnerships fit into defi’s current end-to-end strategy?
For anyone unfamiliar with this strategy, defi recently announced a suite of solutions for the lender’s complete, end-to-end auto and personal loan or lease lifecycle. This solution encompasses everything needed to satisfy the complete needs of the borrower — speed, ease, trust, value. It supplies the software, systems, hardware, and vendors, across all stages of the relationship between borrower and lender. It offers excellent digital communication that results in borrower satisfaction and can extend through collections and remarketing. Read the press release here.
In this end-to-end strategy, defi is planning to focus development, support, marketing, and commercial efforts around a set of tightly coupled strategic partners with a broad set of offerings and capabilities that, when integrated with defi products, bring best-in-class solutions to our clients. As part of the strategy, we will also facilitate and provide the technology and the contractual environment to make other partners available to our clients.
What are some of the defi strategic partners?
Which are some of the defi strategic partners?
For originations, it’s credit bureaus — attributes and scorecard capabilities — and fraud and identity management services, print and electronic distribution vendors, and other compliance-related vendors. For servicing, it’s taxation knowledge, and that applies to originations as well, the printed communications, the digital communications, and beyond. At the end of lease or end of term, it’s about linking to repossession partners, remarketing, auctions, and distribution.
From the moment a potential borrower is identified (buyer or lessor) through the moment a vehicle is returned to the market, we’re increasingly dependent on data for analysis and insight, and then on all the follow-ons that are part of our process.
With recent, extensive feature enhancement and development work completed on defi SERVICING, will defi continue to have the same relationships with other servicing systems?
Clients can benefit with defi as their end-to-end technology partner — from digital application through originations, servicing, outsourcing where needed, end of term, end of lease, and beyond. However, we will, for the foreseeable future, be both an originations provider and a servicing provider and sometimes just one of those to a client. And we will maintain relationships and integrations with the servicing systems in use by our originations clients. However, there will be net benefits from operating multiple phases of the loan or lease lifecycle on one platform in terms of speed, ease of operation, ease of implementation and information sharing. Coordinating those with another provider introduces complication.
Give an example of a “net benefit” of end-to-end?
Recently, a partner introduced a service thathelps lenders increase volume beyond normal prime and reduce credit losses. This is largely a part of the originations process. There is a servicing component that we’re working to integrate, where the certificates of insurance are passed from originations to the servicing system so that in the case of future claims, all the contracts and certificate storage are easily available. That will be simplified on one platform.
But perhaps the biggest net benefit comes from us working for the good of our lending community. By partnering, we supplement and extend our own best practices and deep capabilities with equivalent best practices and subject matter expertise. We’re creating a coordinated best-of-breed solution so that our clients can have a singular, focused relationship with us while still having access to the best of what’s available in the auto and consumer finance market.
Also, clients wary of the big bang required of other systems (where servicing and originations must be done at the same time), can choose to implement either originations or servicing first.
And, all clients, regardless of size of lending operation, will have access to all integrations, data, and insights through an innovative integration strategy.
What can you say about the integration strategy?
Our integration strategy includes future capabilities for API integrations that allow clients to purchase products and services á la carte or through “feature packs.” With these integrations, defi can introduce new capabilities more quickly than if we were to develop them on our own. We are always on the lookout for new partner opportunities and new capabilities we should add to our product suite. Right now, we’re keeping an eye on the electric vehicle (EV) and connected car space. As these areas evolve, we’ll assess the impact to our clients and to our product suite, and add capabilities or partners as required.
Our partners are eager to expand their offerings across our end-to-end solution and introduce their services to a client base that processes millions of applications today through a single product. There’s the potential to increase this volume to tens of millions of applications in the not-so-distant future.
Our mutual clients want the flexibility to pick the partners, the partner capabilities AND the phase or phases of the end-to-end lifecycle where they use the information. Our clients will be able to configure and use the data across their entire lending lifecycle as they see fit.
You mentioned “feature packs.” What’s a “feature pack”?
First ask, “What’s the core?”
Okay … “What’s the core?”
Good question! The core is comprised of components needed regardless of the type of lending. These components are not unique to any type of product, or the type of asset financed. For example, using the originations phase of the lending process, core components include things like user access, a configurable UX, workflow management tools, notifications, integration of credit bureau data, QA.
As we develop new features and new capabilities outside of the core, they will be assigned feature packs.
Now … what’s a feature pack?
A feature pack works with the core and pulls together a set of related features. Like when buying a car: you choose a make and model (the core) and then might choose a high-performance option package, or maybe one for off-roading or towing. Maybe all three. The package isn’t restrictive. You can supplement and add other packages or components individually. But the packages group the things needed for the desired outcome.
defi feature packs will pull together (the capabilities or data) that make sense for the type of lending. A finance company that does auto lending will need the “auto feature pack.” A captive lender might need the “auto feature pack” and a “captive feature pack” (with the captive feature pack providing incentive management, dealer management, and prioritization of dealers by manufacturer region). Now say one of the above types of lenders decides to also do powersport lending, they could implement the “powersport feature pack” and begin doing business.
Well-defined feature packs will reduce implementation time and improve flexibility (as lenders won’t have to set up things they don’t want or need to worry about) and will ultimately reduce costs all around. Lenders will focus their efforts on the core and their feature packs.
Now here’s a twist:
A bank that does auto lending or other large enterprise lender, might want the “auto feature pack” and want to connect to any myriad of unique or proprietary integrations or services inside of their own organizations. These “myriad of others” are not partnerships of defi. They’re unique to the lender or proprietary.
Building integrations to a lender’s proprietary services will be the same process as supporting the broad effort of the integration strategy.
What are the biggest benefits of the partner involvement in the feature pack / new integration strategy?
Other than what was just discussed? Looking to the near and distant future: The really exciting thing about the feature packs and our integration strategy is the ability of both clients and partners to evolve and mature their businesses. We’ll be leading them to a certain innovation and they’re simultaneously going to come across ideas that may not yet have hit our radar. This structure gives us all a world where evolution is easier and less resource intensive.
For defi, the strategy and partnerships introduce market diversification or segment diversification. Take, for example, credit unions. Credit unions have a variety of core requirements that are not a traditional part of defi’s originations offerings. Yet, through partnerships, we’re able to offer those. Our core skills, already extensive when it comes to originations, help credit unions extend beyond direct lending into indirect lending, as we’re able to harness the information the credit unions need today.
A successful integration strategy of data services and products built around and integrated into our core offerings will evolve the partnership model.
We’re hopeful and optimistic that particularly our most forward-thinking and proactive clients will work with us to test and stretch what that vision of client and defi partner looks like into the future.
Talk more about reduced implementation time.
The lending lifecycle is information intensive. There’s acquisition, which is meeting the customer where they’re shopping and getting them to engage in a credit process. Then you have the actual underwriting and origination process, which if it’s indirect includes contract validation. And then there’s servicing of the approved loans and leases.
Servicing relies on fewer partner integrations. Servicing is more about scale. An average captive lender is probably adding 75,000 to 80,000 accounts a month. The average life of a loan is 39 months, the average lease is 39 to 40 months. Take one month of activity times 39 months and you’ve got about three and a half million accounts for the average lender. Crunching those numbers at month end, performing month-end transactions on a portfolio of three and a half million accounts, requires huge computing power.
Originations is far more partner intensive. Originations is all about speed, in a micro transaction way. From small lender to the largest – with the average defi lender processing 100,000 to 150,000 apps per month. – quick implementation is key. The decision of whether a lender wants a three-, five-, seven-year relationship with that customer is made within seconds or minutes.
Most auto lending originations clients use probably 15 to 20 external data providers at a minimum: dealer portals, application sources, credit bureaus, alternative information for thin credit files, guidebooks, fraud providers, and servicing system integrations, if they’re not using defi SERVICING.
For each of those partner calls or functions, there’s a unique set of transactions that occurs in a series. Ideally, you want to process an app in 5 to 10 seconds and a contract in 15 to 20 seconds. With the dependence of lenders on this third-party information to win deals – and with the integration landscaping growing – we must be mindful of performance and keeping the integrations modern and on standards that allow us to scale.
Performance is critical and partners are rolling out new products every year. When you multiply new products by number of partners it rapidly becomes an exponential problem, or opportunity, depending on your viewpoint.
From the opportunity standpoint, it is up to defi to become more “plug and play.” We need to be able to quickly deploy new partner standards, products, and versions. We provide the conduit and the access. Our partners work with our shared clients to sell their product or upgrade to a new version. We continue to provide access to the newest, latest and greatest data without having to make wholesale changes to the defi system.
How does the end-to-end strategy align with the previously discussed buy or build options?
The core, the workflow, and API management tools, are all the “plumbing” needed, even if “building your own system.” It’s what a lender does with the data, what they pull in, and avail themselves to, that distinguishes one lender from another, especially when getting into high volume.
defi is in the process of building a modular suite of end-to-end services with access to external capabilities. Lenders can use the parts we provide, (the core, a workflow engine, a pricing engine, our expertise), add defi feature packs, use what they can build and integrate, and pull in data from other third-parties where they want. They can make their model work for them, but not waste their time.
It doesn’t take anything away from the build option. It just makes it faster for them to get to market. But the thing that those both have in common is the readily available way to integrate data across a lifecycle.
The ability to leverage APIs is at the heart of what we build for ourselves and what we partner to provide.
When is this all taking place?
As much as we’d love for this to happen overnight, our integration vision will begin to evolve in 2022 starting in defi ORIGINATIONS. And then the manifestation of this from a commercial and contractual side is expected to intensify in early 2023.
How will partnerships help define defi’s future?
As the new integration strategy concept grows, it will push and extend our definition of partnership.
We’re still envisioning what that will look like and what will be required. However, we know that over the next couple of years, the successful incorporation of data services and products built around and integrated into our core offerings will evolve the partnership model.
We expect it may also cause an interesting evolution in what we do.
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