Auto finance is an unusually interesting place right now. New technologies, new business models and new competitors give industry incumbents cause for excitement and anxiety in equal measure.
In a disrupt-or-be-disrupted world, here are five key trends auto finance companies, including banks and the captive finance companies of auto manufacturers, should be prepared to respond to in 2019.
- Mobility-as-a-service will drive growth and profitability
Mobility services are exploding in popularity, especially on well-known ride sharing platforms. Accenture Research projects indicate that annual revenue for mobility services could soar into the trillions by 2030. The auto finance industry has noticed and is responding with a range of strategies to better own the customer relationship in this new space, simplify and control fragmentation in the payments ecosystem, and partner with (or compete with) start-ups moving into the space. 2019 will be the year in which mobility-as-a-service leaps off the pages of planning documents and into the market.
- Blockchain will get real
Virtually everyone in auto finance is testing blockchain-enabled technology. Insurers and banks are piloting a variety of blockchain-powered financing solutions, and auto captive lenders are serving as test-beds for manufacturer blockchains. The most exciting prospects include putting the vehicle on a blockchain to support for insurance, fraud detection and floorplan financing, and using blockchain to turn the vehicle into a mobile wallet. Significant competitive advantage is accruing to first-movers in this space, which is why Accenture is collaborating with other industry leaders as a sponsor of the non-profit MOBI consortium. As the growth incentive yields rapid maturity, industry blockchain pilot programs will shift from theoretical to real.
- AI will create smart sales channels
It has traditionally been understood that banks would know more about the customer while the manufacturer’s captive lender would know more about the vehicle. That is now changing, as AI-generated intelligent signals enable banks and fintech lenders to tap new sources of consumer data for predictive insights. For example, these systems can use advanced analytics to predict which vehicle options a consumer may want with surprising accuracy. Meanwhile, telematics and other on-board sensors give captive lenders insight on customer behavior like never before. Potential improvements in customer experience and creation of new revenue streams is immense for both sides of the industry.
- The market will begin its metamorphosis
One vehicle, one payment, one party on the transaction—that’s the traditional model of auto finance, but now the new ideas are many. Among them are the subscription model, in which consumers pays a flat fee for access to the car of their choice, and the shared ownership model, in which a single vehicle is owned by more than one person. These models could help keep vehicles affordable as technology features increase manufacturing and maintenance costs. Some of these models threaten to disintermediate industry incumbents, so they will need to be part of the change and create models that play to their strengths.
- Dealers will decide which road to take
More consumers paying for transportation with a subscription probably means a smaller market for auto sales. Dealers will need to decide if they build a mobility service, consolidate and attempt to compete at scale, find a niche business model or pick another path to profitability. Their options are as diverse as they are interesting, and in 2019 we will start to see the roads dealers take diverge.
We would like to talk more about your auto finance business and how our innovative capabilities can help you respond to changes in the market. Reach out to our team.