Auto dealers are beginning to turn to fintechs to smoothly integrate financing and insurance products into an end-to-end online transaction.
Fintechs are information-technology providers specializing in applications delivering F&I products to customers via a dealer’s website.
The online auto-purchasing process often stumbles when it’s time to finalize a loan, says Michael Buckingham, senior director of J.D. Power and Associates’ automotive-finance practice in Costa Mesa, Calif.
“For the most part, they’re catching up the finance process to the sales side and the service,” he told Automotive News Canada.
The U.S. auto sector has used fintechs for a few years, but they are only now penetrating the Canadian market.
San Francisco-based AutoFi last spring announced an agreement with the Tricor Automotive Group to provide a white-label car-buying and financing platform. The privately held group operates new-car dealerships across Canada and offers financing and warranty products.
MAJOR LENDERS SOUGHT
Neither AutoFi nor Tricor would discuss details, which still require negotiation with auto manufacturers and lenders. AutoFi co founder and CEO Kevin Singerman said it’s expected AutoFipowered dealer sites will be running by the end of this year.
“Our goal is to have at least one major Canadian lender live on the platform when we go live,” he said in an interview.
Tricor operations vice-president Robert Armstrong said robust, seamless digital platforms are essential in a buying experience that is rapidly changing.
Current auto sites have proven unsatisfactory once things get past selecting a vehicle, Armstrong said, noting that shoppers accustomed to two-click online retail shopping are directed to a dealer salesperson who responds by email.
AutoFi’s platform is not just a lead-generation tool, he said.
“And I don’t know that we see it adding incremental sales but rather servicing the customer in the way that they want to be serviced now.”
Singerman and Armstrong distinguish fintechs from other platforms in their ability to better handle finance arrangements, offer buyers options beyond the captive lender and present them with products such as extended service contracts and wheel and tire insurance in a low-pressure environment.
“When I speak to the various lenders, what they tell me is it’s very difficult to build a good solution for the consumers that can also integrate with the dealers,” said Buckingham.
Fintechs have found a niche providing online financing for buyers and channels for lenders that they might not have the expertise to develop their own, he said.
Most dealer and carmaker sites allow buyers to apply for credit online, but often the paperwork must be completed at the store, sometimes repeating the whole tedious process.
“Consumers are telling us they spend all this time online and then they go into a dealer and start from scratch,” said Raymond O’Kane, executive chairman of Torontobased Motoinsight, which developed online platforms for automakers including Hyundai, Honda and Mazda.
Motoinsight does not consider itself a fintech since it doesn’t seek direct partnerships with lenders.
“We’re lender agnostic, we’re dealer agnostic,” said O’Kane, who ran BMO’s automotive finance arm for 15 years before retiring.
Fintechs can integrate e-contract completion and provide customers with finance options outside dealer/automaker captive lending channels.
For buyers who opt to do some of the transaction in-store the platform needs to make that handoff seamlessly, which doesn’t always happen now.
The ability to incorporate backend products, such as extended service contracts, into the final pricing calculation is also essential to dealer revenue.
While vehicle pricing has become more transparent, that final phase of the transaction remains stressful for customers, said Armstrong.
“It’s still the pressure cooker; it’s still the box, if you will,” he said.
“In order to get the dealers on board, recognizing that the F&I products are an integral part of the transaction, they have to include those in the consumer-facing view,” said Buckingham.
Fintech platforms incorporating mini-tutorials on F&I products reduce customer angst. They can educate themselves earlier in the purchase “journey,” said Singerman.
O’Kane said he expects fintechs will overcome hurdles set by Canada’s tighter banking regulations in areas of financing compliance and disclosure.
AutoFi has hired Canadian legal counsel to ensure its platform will comply with local laws, said Singerman.
Canada’s relatively smaller lending pool actually may make it easier to launch AutoFipowered sites here than in the United States, he added.
“That actually lowers the barrier to entry around maybe working with a few key partners and being able to have a much bigger impact out of the gate versus the U.S.,” he said.