Motor finance and the automotive space at large are being reshaped by the global flows of data. Are industry players fast enough to adapt? Lorenzo Migliorato reports back from the Digital Banking Club Motor Finance Live Debate.
As in every industry, the disruptors are arriving into the car space, too. The car is rapidly becoming one of the main springs for consumer data, and the traditional incumbents should do well to tap into it.
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“You have got to have those foundations,” Simon Cadbury, director of strategy, marketing and innovation at Intelligent Environments, tells the audience at the Digital Banking Club Motor Finance Live Debate. “If you don’t, you are going to be at a competitive disadvantage going forward.”
Collecting data alone is not enough. If a product is to be successful, particularly in financial services, it should be designed from the customer’s point of view.
“The starting point, with any of our work, is always to think about the customer, the situations, the questions and the challenges that they are facing,” says Tom Stinton, digital experience leader at Intelligent Environments.
As the way in which consumers use cars changes, technology is key to providing them with different options to using their asset. For instance, connectivity around vehicles may one day make it possible to share one’s car when it would otherwise be idle.
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By GlobalData“I have got this vehicle that I do not use all the time – I could make a bit of money if I sub-let it out,” says Stinton. “Are people going to go down that road? Is it something people feel comfortable with?”
More data is created from vehicles – private or shared – than ever before, and crucially, more of it is being presented in accessible ways, as an enabler for decision-making on the customer’s part.
Stinton showcases a conceptual solution where the app from the car finance provider interplays with the connected car software, allowing customers to see how they are faring in terms of mileage allowance, alerting them in advance if they are forecast to go over the limit.
The app could also offer the purchase of mobility packages – for example to switch to a larger vehicle while on holiday. As the possibilities around services in the automotive market increase, so do the compliance challenges.
“It is getting more difficult,” says Justin Benson, head of automotive at KPMG. “What we are saying is that it is being bypassed. If you think about the US, which has a very strong compliance and legal situation around dealers – in a sense, they have set it up so that you can only buy a car through a dealer. But Tesla, a new entrant, has gone around that, and it has gone directly to its customers. It becomes a different proposition.
“The way in which finance and automotive companies are dealing with the end customer is changing. The whole relation is moving.” For Graham Wheeler, executive director at GW Executive Consulting, the compliance challenges mainly affect the back end of business, for instance around affordability. “There is very little data available in terms of assessment of customers’ affordability, other than the traditional route of gathering payslips and bank statements,” he says.
There is potential for the application of AI and machine learning to credit checks, as is already the case in China, but that is bound to come with scrutiny from regulators. At the same time, regulators have looked – and would look – favourably on innovation that facilitates life at the customer’s end.
Andrew Brameld, managing director for BNP Personal Banking, says one such example is comparison apps, which can now leverage Open Banking. “For me that is what changes the whole model,” he says.
Brameld mentions Bud, an app hailing from Sweden that aggregates all of the user’s bank accounts, and allows the user to compare lenders and “switch debt” from month to month to get the best rate.
He notes: “That starts to change the model all the way down the food chain, in that dealers will need to make money out of selling cars again, because they will not be able to rely on commissions.”
In that sense, the consumer car space is becoming much more liquid, says Cadbury. “I think motor finance will move to a model much more like utilities, where you pay a certain amount for your access, and the rest is variable, based on how much you are using that vehicle,” he says. “I think the energy analogy is very strong.”
This kind of innovation is coming, but not immediately. In a sense, this gives service providers – whatever their place in the automotive supply chain – time to prepare. “I am thinking a bit far in history, but this is [still] within the next 10 years or so,” says Benson.
“It is not a big bang, it is not going to happen overnight; there is a build-up to it. “Think about the new ways in which you can interact with your consumers and customers, which will enable you to create a new business model for the future.” Cadbury believes there will be a battle for who has the most interactions and touch points with customers.
“At the moment, a lot of the established OEMs are not leveraging those touch-points enough,” he says. The conceptual app showcased by Stinton would be an example of a very strong touchpoint, through the OEM’s captive unit. “The only way the industry can fight back [against fintechs] is to create more touchpoints,” Cadbury says.
“It needs apps, it needs a presence on the dashboard. The more ways you can make things easier for customers, the more chance you have of maintaining a relevance going forward.
“But most importantly, you have a platform for the business model, when it changes – when finance becomes more complex and involves [additional services].” The captives have everything they need to implement the next-gen model, says Brameld.
The question is whether they are “agile enough to actually invest in the future [and] step off the ledge and get into that future before anyone else”.
Fintechs have stepped off the ledge already, he says, because they have nothing to lose. “Are the manufacturers brave enough to invest in doing that?”
