Post-pandemic auto financing has seen major transformations, but only people who closely observed know that it is not a consequence of the pandemic alone but a long-happening overhaul of auto financing which was catalyzed by the pandemic. This makes these changes extremely important and inevitable to adopt under all situations for auto financing businesses to thrive.
In this blog, we are bringing you exactly what you need to know to succeed in this transformation phase - the five major trends of auto financing.
Disposable income has significantly increased in developing countries. Consequentially, demand has increased for vehicles, bringing in the need for increased auto financing. Traditional methods are insufficient to cater to this demand and digitalization is replacing them perfectly, bringing down the time needed to process loans from days to minutes. The widespread adaptation of digital payments has empowered auto financing by providing alternative data apart from traditional credit information sources. This has brought about greater credit visibility and increased customers who are creditworthy, bringing so many who were underserved into credit access. Automation and artificial intelligence have brought precision and accuracy by reducing NPA and repossession.
Statistics say India made a total value of 742 Cr worth of digital payments in FY 22 at a 33% growth rate. NPA’s reduced from 8.2% in 2020 to 7.3% in 2021.
- Online buying experience:
Convenience, time-saving, and above all transparency have enabled customers in choosing an online experience for buying. Leading organizations’ surveys present that buyers are spending 10% less time at dealerships i.e., 2.55 hrs in 2016 to 2.37 in 2020 and heavy digital users are spending only 2.07 hrs which is 25% less time.
The key reason is being able to do more effective monthly credit calculations, apply for finance, select F&I products, review and sign final contracts online, and compare with a lot of options to select the best. This transparency has made lenders and borrowers connect who do not have independent relationships prior. Online Lending platforms are able to do this at a never-before level driving auto finance to rise as a market. In fact, a whopping 76% of vehicle shoppers are open to conducting the buying process completely online. Even more, the opportunity is present with higher visibility of refinancing and other ancillary services.
- Increasing ticket size:
Phenomenal increases in EV sales, supply chain constraints, chip shortages, and customers choosing mid-segment and above automobiles have all increased ticket sizes by 20-25%. Auto financiers have to finance more than they used to now. This presents them with greater profit and also greater risk. With the necessary technology, guidelines, and processes, risk can be minimized to make this scenario a fine opportunity.
- Increasing leasing of vehicles:
Though the major share of auto financing is loans for owning a vehicle, convenience and less expenditure are increasing the share of loans for leasing a vehicle. The growth of ride-sharing has also contributed to the expansion of this segment. In fact, ride-sharing companies are turning out to be dominant customers needing Auto Finance. This demand for financing by leasing vehicles is expected to rise over the years with autonomous cars entering the market.
- Increasing competition:
Zero percent offering by manufacturers has come down from 14% to 7%. An increase in demand & increase in ticket size has created an abundance of opportunities for Auto Finance. With this abundance of opportunity came an inherent challenge of increased competition. Only Auto Financiers who provide the best customer experience win the customer.
This is where FinTech has come in to save the day. Cutting-edge FinTech like unified lending technology has perfectly put all that is needed to fight this competition into one place, making their role inevitable and prominent to create winning customer experiences.
The Auto Financing industry is expected to expand at a CAGR of 7% from 2021 to 2028. The growth and expansion moving forward will greatly be contributed by EV financing. For FY20, 1,68,300 units were sold and in FY22, 4,29,217 units were sold with a 155% increase.
To meet net zero emissions by 2050, EV sales will increase tremendously and replace traditional vehicles. By 2030 about 30 crore cars will be EVs, comprising 60% of new car sales. Auto financiers need to aggressively move forward in the direction of EV financing to thrive in these transforming times.