Once there was a prejudice that it was too much of a hassle to finance a car. Since it is an expensive consumer good, consumers had to visit a dealership, check out a car and fill out numerous documents to complete the verification process. Concerns over handling of sensitive personal data and the risk of fraudulent transaction reinforced the perception that auto financing is quite a hassle.
Auto financing companies tried to improve customer convenience with digitalized system. They reduced unnecessary paperwork and cut the underwriting time. Some consumers, however, were still reluctant to finance a car without meeting a sales representative in person. There was psychological resistance to financial transaction without physical interaction because car is perhaps the most expensive items they would ever purchase.
As contactless financial transactions have become common amid the COVID-19 pandemic, digital transformation has become something that auto-financing firms can’t wait. The reduced demand for cars and the reluctance to visit a showroom have increased the need for digital financial services even more. How thoroughly a company has prepared itself could make or break the business.Complicated paperwork simplified with mobile device
Using a financial service for car purchase is common around the world. According to market research firm Statista, 75% of new cars were financed with a loan or lease in the US last year. 91% of new cars were financed with a loan or lease in the UK.
Auto financing used to involve many manual processes. Including consumers, sales representatives spent a lot of time identifying consumers. They need to go over verification documents one by one and explain terms and conditions stipulated in the contract to customers in person.
The introduction of digital platforms, however, significantly simplified these complicated financing processes. Consumers can find out financing options available to them on smartphone apps. If they meet the qualifications, they can finance a car without complicated paperwork. The introduction of face recognition and electronic signature technologies have simplified the processes even more.
Global financial companies are joining these foray. For example, Santander developed an online auto financing platform called ‘i-click’ in 2018 to help consumers apply for a loan faster and easier. In the US, BMW Financial Services, BMW’s captive financing arm enabled customers to sign documents using electronic signatures on iPad, significantly reducing time.People won’t drive any more... digitalization would make a breakthrough
Even though digital transformation of auto financing is in full swing, but many auto financing companies struggle to come up with strategies in detail. According to global consulting firm PWC, more than 90% of dealers said that digital transformation of auto financing is important to their business. However, 83% said they did not have a specific digital strategy yet.
In the wake of the COVID-19 pandemic, digital transformation of auto financing has become something that can’t wait out anymore. Unlike the 2007-2008 global financial crisis, the diminishing demand for cars due to social distancing is perhaps the biggest reason.
Auto financing companies are trying to relive the consumer pressure by deferring car payment. Hyundai Capital America has decided to waive interest payment for up to 120 days when they purchased a new car. Santander Consumer USA and Capital One Financial have announced similar measures.
However, auto financing companies need more fundamental digital transformation to survive the COVID-19 era. According to an IBM report released in April, more than half of executives in global auto companies said that data-based digital innovation is the most important to survive the next decade.
[‘Digital Auto’ is a one-stop-service website that Hyundai Capital opened in 2019 for consumers who want to finance a new car]From online to contactless service, Hyundai Capital leads digitalized auto-financing
There is an auto financing company responding to the digital transformation more quickly than anyone else. It is Hyundai Capital. While most auto financing firms focus on simplifying their loan underwriting process with e-signature, Hyundai Capital’s digital transformation goes much further. Not only it offers personalized financial products with its own data analytics technology, the company also has set up contactless system proactively. The efforts have helped Hyundai Capital address the COVID-19 pandemic.
For the first time as a South Korean auto financing company, Hyundai Capital digitalized auto financing processes by introducing “digital auto financing application system” in 2017. Its customers were able to finance their cars on their smartphones without filling out paperworks in person. Two years later, it opened a one-stop-service website called ‘Digital Auto,’ where customers can easily find an auto financing product fit for them, make comparisons and apply for financing right away. Even customers who are not familiar with how auto financing works can go to Digital Auto and select a car model they want, get a quote and finish the loan application process within three minutes. Digital Auto’s ‘Product Recommendations’ menu also recommends the right financing products for consumers depending on their lifestyle or economic conditions.
Setting up these digital platforms early on helped Hyundai Capital meet the increased demand for non-face-to-face purchases in the wake of the COVID-19 pandemic. According to Hyundai Capital, the number of customers who visited Digital Auto and explored their options on their own reached 20,000 as of April, three times larger than it was in 2019. Used cars purchased online also increased significantly. The percentage of Hyundai Capital Certified Pre-Owned (CPO) cars purchased online accounted for 72.2% in March, about a seven-fold increase from 2018 when Hyundai Capital CPO Program started selling online.
“Our continuous investment in overall auto financing and digital transformation effort allowed us to offer better non-face-to-face experience. We will continue to make effort to make sure they can finance a car purchase simple and easy from their smartphone whenever they want,” said a Hyundai Capital official.