With the widespread adoption of automated credit decisioning technology, automobile dealers have begun trading in their fax machines for dealer management systems that interface with lender networks for quickerloan decisions. By marrying these systems with Web-based business-to-business auto lending portals, lenders and dealers have created a powerful alternative channel in indirect lending.
The Internet is improving indirect auto lending credit decisioning, and strengthening the relationship between financial institutions and automobile dealers. By linking automated decisioning with the power of the Internet, lenders and dealers are further simplifying and automating the paper-intensive decisioning process.
"The Internet will help the lenders service the dealer better during the whole auto lending transaction," said Jo Nicholas, vice president of indirect lending at Regions Bank, Birmingham, Ala."By transacting business electronically we can speed up the loan process from the application all the way to paying the dealer."
Requiring only a minimal IT investment, industry portals add speed and accuracy to decision delivery, and allow dealers and lenders to add revenue to their bottom lines. Recurring dealer adoption is pushing lenders and technology providers to further enhance B2B e-marketplaces, giving them a stronghold in the industry.
"It is apparent the Internet is here to stay. The end user will use it and get more comfortable with it," said Patricia Freeman, vice president of dealer financial service, e-commerce strategy at Bank of America. "However, it will not be a tool to make us money. Instead, it will help us improve the customer experience and operating efficiencies."
In the mid-1990s, business-to-consumer referral dot-com sites like Autobytel, Carpoint.com, AutoWeb and Invoicedealers.com gave dealers their first taste of the power of the Web. These sites accept online forms with car make, model and features of their desired auto.
Some aggregators, like LendingTree and 1-800-CARLOAN, cater to consumers shopping for a loan rather than a car.
Yet despite the inroads made by the online channel, consumers have so far been treating it gingerly. While 60 percent of consumers use the Web to research cars and auto loans, only five percent of applications are processed and converted to loans through these consumer referral sites, according to TowerGroup.
"The consumer wants all of his information ready for his purchase, but he still wants to kick the tires at the dealership," said Nicholas. "Consumers are still hesitant to conduct large monetary transactions via the essentially anonymous world of the Internet."
SHIFT TO AUTOMATIC
Although referral sites have provided dealers an opportunity to get comfortable with the online medium, they alone haven't simplified the largely manual loan decisioning process. Typically, dealers enter all consumer data into an office PC, print out the multi-page application, then fax it back and forth within a lending partner network, which could comprise at least five banks.
The system is fraught with inefficiencies. Upon receiving the paper document, the bank's loan officer must manually reenter the same data into the bank's lending system, which processes the information and approves or rejects the loan. Approvals are faxed back to the dealer, who chooses the best rate and closes the deal with the customer. This process, which could be riddled with errors due to constant rekeying between each party, takes up to three or four days to produce an approval.
Several years ago, banks began installing auto decisioning tools-technology that incorporates user-defined rules, traditional scorecards and predictive software models to automate the approval process for loans and cut authorization time to a matter of minutes. According to the 2001 Auto Finance study from Benchmark Consulting International, an Atlanta-based process management consulting firm for financial institutions, participants in the study processed an average of 59.0 applications per day compared to the industry average of 50.2.
Several large banks have created Web-based consortia that marry dealers with their network of lenders electronically, eliminating the need for dealers to add extraneous hardware and software, and rendering their fax machines obsolete in the decisioning process. Dealers can enter customer information, including name, Social Security number, date of birth, collateral information and other pertinent data, directly onto a Web-based form. The dealer then selects which lenders in its established network will receive the application. The data is electronically filtered into the bank's application system, and put in queue for evaluation by the bank's decisioning system. Within three minutes, an approval is sent to the dealer online.
"Dealers are embracing these technologies and adding the proper equipment in their sites, so we are seeing a stronger adoption of technology than years earlier," said Steve Uffman, CEO at APPRO Systems, a Baton Rouge, La.-based provider of risk automation and loan automation software.