As the motor finance sector grapples with changing regulations, declining EV sales, and shifting consumer expectations, Andrew Williams, Senior Director for EMEA at FICO, highlights five key trends – from connected car data and feature subscriptions to the rising demand for hyper-personalisation – that are set to define the industry’s future.
The automotive industry is poised for big changes in the coming years. Shifting zero emissions deadlines, falling electric vehicle (EV) sales and the knock-on effect on residuals and new legislation are making it increasingly difficult for motor finance providers to plan ahead.
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Providing focus for planning and investment, we believe some of the biggest influences on how the sector will evolve include connected car data and Over the Air (OTA) Updates; hyper-personalised offers and communication; car feature subscriptions; EV ownership costs; and the need for more agile ‘decisioning’ systems.
Utilising connectivity
Vehicles have been increasingly connected for many years, producing vast amounts of data. How that data is utilised, and how the connectivity is used, is changing, thanks to the latest technology. Rather than simply retrieving data from the vehicle, connectivity is now enabling Over-the-Air (OTA) updates, whereby updates are wirelessly transmitted directly to a vehicle’s software system.
OTA updates range from minor bug fixes and adjustments to improve the overall performance of a car, to significant software changes that can enhance the functionality of a vehicle. For example, upgrades for brakes, advanced driver assistance systems (ADAS), and even electric vehicle (EVs) upgrades for charging and mileage. Removing the need for vehicles to go into a dealership for manual software updates reduces downtime, boosts convenience for drivers and increases efficiency for dealerships and garages.
Vehicle connectivity will also dramatically change customer communications, an area in which the industry has traditionally struggled. A connected car will recognise when it needs a service and then recommend when and where to get that service done.
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With the level of personal data gathered via the new generation of vehicle connectivity, motor finance providers can be more flexible and competitive with their loan offers. It’s all about giving customers more choice. Using sophisticated mathematical optimisation algorithms, lenders can quickly identify the offers best suited to each customer. Running in real-time, can lead to dramatically higher booking rates and lower underwriting costs.
Connectivity can also assist with contract variations. For example, real-time data on mileage can highlight if the driver is doing significantly different mileage than stated at the start of the contract. It can then be updated accordingly, to accurately reflect the likely impact on residual value at the end of term.
Subscriptions
The popularity of subscription services is growing and, within automotive, it is growing in one specific area: vehicle features. Vehicle finance subscriptions may not have taken off yet, but subscriptions enabling access to optional features are growing. Drivers recognise that they do not need or want all of the advanced solutions available in their new car, and they do not wish to pay for those they will not use.
Feature subscriptions allow drivers to only pay for the car features they need during the months that they use them. These include features around performance and horsepower to help with acceleration; software improvements to expand EV range; and cold weather packages that unlock heated seats or battery upgrades. Volvo is one manufacturer seeing significant success with this subscription model.
EV ownership
Electric vehicles hold a lot of promise but also a lot of uncertainty for the industry. EV repairs are often more expensive than those for petrol or diesel vehicles, albeit the average EV has much longer service intervals than its internal combustion counterpart. Far fewer moving parts fail, and there are no oil changes or spark plugs requiring regular servicing. However, protection products to spread the cost of service, maintenance and repair are increasingly popular among EV drivers, as they fear the potential high cost of repair when something does go wrong.
Data-driven decisions
As customer demand for hyper-personalised solutions grows in all retail and financial sectors, the automotive industry is likely to move from a single origination transaction to ongoing risk assessment. It used to be the case that 95% of the “action” was at the point of origination — however, we are rapidly moving towards a world in which lenders in the automotive sector will need to make almost continuous decisions about each borrower.
The rise of subscriptions and OTA updates is changing the landscape. Lenders will need to regularly re-underwrite each customer, requiring more agile ‘decisioning’ systems and more continuous risk assessments. And that means better access is needed to the vast amount of data currently siloed by OEMs, dealers, finance providers and more.
We believe that breaking down these silos and helping organisations within the automotive industry to access the data they need to deliver the right solutions for customers is what’s needed at the right price and level of risk for lenders. Whichever direction motor finance takes, employing robust data analysis and comprehensive risk evaluation will help lenders remain competitive, without putting profitability at risk.
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