Today’s increasingly complex automotive lending environment presents challenges both new and old for dealerships and their financial partners. While auto loan debt is nothing new, economic hardships for many consumers paired with the rising cost of vehicles is increasing the risk of delinquencies for borrowers of all types. Auto loan debt has reached levels higher than those of the pre-pandemic market, including for prime and midprime borrowers. With interest rates expected to remain at relatively high levels for the near future, it’s critical for lenders to streamline payment efficiencies for both themselves and their borrowers. Digital payment acceptance and automated payment tracking technologies offer a comprehensive solution to address today’s auto lending challenges by prioritizing both consumer convenience and lending compliance.
The Cost of Payment Inefficiencies
It’s simply a fact that making loan payments of any type isn’t exactly fun for consumers. While borrowers enjoy the flexibility and convenience automotive loans offer at the time of purchase, lenders will likely be hard-pressed to find an individual who rejoices at making a payment when the bill comes due. However, this doesn’t mean that making the payment itself needs to be a painful process.
Friction throughout the payment process reduces the speed and efficiency of consumer payments. Outdated payment methods such as physical checks and manual wire transfers are inconvenient for consumers. On the lender side, these payment options often require additional accounting and tracking that consumes precious time and resources for accounting teams. Reducing the friction associated with payment processes by offering more convenient, flexible payment options offers significant benefits for both parties.
Digital Payment Solutions: Meeting Borrower Expectations
Modern conveniences in consumers’ day-to-day lives have significantly adjusted their expectations when it comes to payment methods. Now, more stores than ever are accepting payment methods ranging from traditional debit or credit cards to digital wallets and currencies. The same is true of e-commerce platforms and vendors, as well as service industry businesses. If a business only accepted paper check or wire transfer, it’s likely that consumers would find another provider of the same or similar services. While consumers don’t have a choice in how payments are submitted to lenders after the contract is signed, it can influence who they select as their financier and their ability to submit timely payments.
To attract borrowers and reduce delinquencies by helping to ensure timely payments, automotive lenders can prioritize offering modern, more comfortable and convenient loan payment methods. These include a broad range of more traditional methods such as debit cards, ACH transfers and IVR payments, as well as payments made via digital wallets – which remove the need for consumers to have their physical card handy during the payment process. Online payment portals and text payments can also allow borrowers to submit their payments more easily on the go when they receive reminders from the lender. While this may seem like a small convenience at face value, any means of reducing the borrowers’ effort required to submit payment will significantly increase their likelihood of submitting on time.
Operational Benefits and Efficiency Gains
The convenience of digital payment acceptance extends to lenders as well as consumers. Lending is a highly competitive market, and optimizing the handling and accounting of financial transactions is absolutely critical for lenders that are seeking to grow their operations and expand the business. Digital payments submitted through online portals are immediately tracked and logged in loan or dealer management systems, with timestamps to prevent the need for manual review and accounting – saving significant time and resources for lender teams. When borrower payments are late, missing or do not meet the required amount, lenders can be immediately notified and communicate with the borrower without risking a mistake due to improperly logged payment data.
The integration of payment solutions and loan management systems provides a clear record of any borrower activity, with automatically triggered notifications to both consumers and lenders. This ensures that both parties are operating on the same record, reducing the risk of misunderstanding regarding the remaining loan amount or payment history.
Compliance and Security Advantages
Digital payment solutions also reduce the risk of non-compliance through manual error and help to protect sensitive financial data from unauthorized actors. Secure payment platforms use tokenization to encrypt sensitive information, ensuring compliance with the PCI Data Security Standard and reducing the risk of breaches or fraud.
Advanced payment solutions can also automate compliance checks and notify lenders of potential issues before they become a risk. Through capabilities including real-time monitoring, transaction tracking and Nacha-compliant audit trails, lenders can rest assured they are remaining within the parameters set by regulatory authorities without the expense of manpower associated with manual review.
A Strategic Imperative for Auto Lenders
Digital payment acceptance is not only a convenient option for borrowers but a competitive advantage for automotive lenders that has a direct impact on portfolio performance and borrower satisfaction. As consumer expectations and preferred payment methods continue to evolve, it’s essential for lenders to evolve alongside them to attract more borrowers and scale operations. Comprehensive digital payment options and the efficiency gains that are built into advanced payment solutions are now critical to the success of loan providers in the automotive industry.
This article, From Friction to Efficiency: Digital Payment Solutions That Drive Auto Lending Success was originally published in AutoSuccess.