"Banking is necessary, banks are not". This visionary statement by Bill Gates from 1994 on the future development of the banking business also hits the nail on the head from today's perspective. This is because customers' desire for transparent, convenient, fast and seamless online processing of their banking transactions and other services is shifting the focus to the design of business processes.
Customers want digital: from application to conclusion
The success of online brokerage platforms, such as auxmoney.com for loans or savedo.de for investments, illustrates customers' desire for end-to-end digitalization. Innovative technologies can also create added value for "simple" banking tasks, such as payment transactions. The kontist.com app, for example, supplements payment transactions in the bank account with the corresponding entries in customer accounting and calculates the expected taxes and duties to be paid in real time. The app also includes paperless account opening, push notifications for account movements and an early warning system for payment bottlenecks. This benefits freelancers, the self-employed and small and medium-sized enterprises in particular, who cannot afford to employ their own specialists for such mandatory business tasks.
Source: Accenture Financial Services (2017). Financial Providers: Transforming Distribution Models For the Evolving Consumer [1]
Intelligent, digital solutions for specific target groups are disrupting traditional business processes in the banking sector and creating new competitors. This also applies to the automotive industry and car financing. Customer surveys repeatedly confirm that the process from application to credit check, legitimation and signature to payment / vehicle handover should be completed online and as quickly as possible. Although customers like to use the credit or leasing offers to plan and control the costs of their automotive mobility, they want to be burdened as little as possible by the associated bureaucratic effort. As the car manufacturers' own banks, the so-called captives, often focus on optimizing and digitizing the offline lending process with the associated dealership of the respective vehicle brand from their strategic role as sales supporters, there is scope for new providers to come up with innovative solutions. As a result, the relationship between the dealership and the principal bank is disrupted and sovereignty over customer data is lost. Some examples are discussed below.
Car dealerships and digitalization
Offering the best vehicle financing for the US car trade - that is the declared aim of the internet platform routeone.com, which was founded in 2002. Car dealerships can use the entire lending process, including the customer's electronic signature, and choose from various financing partners. The car dealership selects the partner and thus also the brokerage commission. This cuts the direct line to the manufacturer's bank and opens up the financing business to competitors.
yareto.de, founded in 2015, pursues a similar approach in Germany. All digital solutions can be operated on any end device and more than 4,400 car dealers can currently choose the best offer for their customers from nine financing partners [2]. These naturally include the Wehrhahn Group's Bank11, which also operates the Yareto brokerage platform, but no captives.
Customers in the car dealership
autofi.com from San Francisco, California, founded in 2015, offers a platform for the completely paperless online processing of vehicle loans. Customers can use the dealership's website to complete the entire purchase and financing process digitally and on mobile devices, as well as choose from a range of financing providers. The necessary contract signatures are provided when the vehicle is collected from the dealership. This approach allows offline and online processes to be combined at the dealership. Ford Credit acquired a stake in the FinTech company in 2017.
A similar approach is taken by autogravity.com from Irvine, California, which was founded in 2015. Customers can use the app to select the vehicle they want online from affiliated dealers, choose from up to four credit and leasing offers and have their credit rating checked in advance (pre-approval). The dealership receives a commission. Here too, the contract is signed when the vehicle is collected from the dealership. Daimler Financial Services acquired a stake in the start-up in 2017.
Customers want to buy a car online
Since 2012, Sixt Leasing has been offering a manufacturer-independent online quotation process for the purchase of new vehicles in conjunction with car financing via its website sixt-neuwagen.de. The private or commercial customer selects the desired vehicle model from around 30 manufacturer brands [3]. In return, they receive the monthly installment of a loan or lease financing for the desired vehicle at preset conditions with variable contract terms. Similar to the manufacturers' vehicle configuration websites for new cars, the customer can then select the desired equipment, engine, etc., and the monthly rate is automatically adjusted. The vehicle can be taken over either at the manufacturer, at the dealership or directly at the customer's home. In addition, services and car insurance packages are offered which, if accepted by the customer, are also included in the monthly installment of the financing. The offer is requested online from Sixt Leasing and the customer receives all the necessary documents by e-mail, including consumer credit information, self-disclosure and Postident coupon.
Source: Stenner
The unique selling point of this process lies in the integration of online car purchase and vehicle financing solely on the basis of the resulting monthly installment. This overcomes any psychological barriers to purchase that may arise for consumers in view of the high list prices from the outset. The customer becomes more generous in his decisions with regard to the manageable monthly charge and initiates higher sales compared to cash purchases [4]. Although the sales and lending process of this portal is not (yet) fully digital in its current form, it already largely meets the requirements of the digital native for convenient and fast solutions. If the customer selects the option "vehicle takeover at own place of residence", neither the car bank of the manufacturer concerned nor the dealer organization responsible for the vehicle brand are involved in the sales process. Sixt Leasing's online retail division had a portfolio of 27,400 contracts at the end of 2016 (an increase of 30 percent compared to 2015). The concept and success of this B2C approach calls into question the future viability of the traditional B2B2C sales channels of OEM/manufacturer banks, whether analog or digital.
When will automotive banks launch their own digital applications that enable customers to purchase vehicles completely digitally on the basis of a monthly installment of their choice, transparently, without media disruptions and on a mobile basis?
Yours sincerely,
Dr. Frank Stenner
Recommended reading:
PwC (2017). Financing the car of the future. URL: www.pwc.com/us/en/consumer-finance/publications/financing-the-car-of-the-future.html
Sources
1 Accenture Financial Services (2017). Financial Providers: Transforming Distribution Models For the Evolving Consumer. URL: www.accenture.com/us-en/insight-financial-services-distribution-marketing-consumer-study
2 Handelsblatt (2017). Race of the strategists. URL: www.handelsblatt.com/my/unternehmen/mittelstand/familienunternehmer/werhahn-henkel-haniel-wettlauf-der-strategen-/19880334.html
3 Sixt Leasing SE (2017). Sixt Leasing SE Annual Report 2016. URL: ir.sixt-leasing.de/sixtleasing/pdf/hv2017/02_HV2017_Geschaeftsbericht_2016_de.pdf
4 Stenner, F. (2014). A turbo for sales. kfz-betrieb 48/2014, pp. 26-27
