Auto Lenders Can Decrease Delinquencies by Offering Multiple Ways to Pay

Auto lenders are facing a big problem: credit quality is deteriorating. Private lenders and buy here pay here lenders are getting hit the hardest. If you haven’t suffered yet, higher than average delinquencies are probably coming your way.

Auto loan originations have hit an all-time high of $584 billion. At the same time, the Motley Fool reports that 7 million Americans are more than 90 days late on their auto loans, which accounts for almost 6.5% of all auto loans across all credit grades. Bloomberg describes the problem as the highest auto delinquency levels since 2012. More people are now behind on their auto loan payments than during the Great Recession.

The bottom line: bringing the deals in is no problem, but making sure your portfolio stays current might be.

If you are an independent auto lender, you need to proactively manage your portfolio, or it could get away from you. REPAY has the tools to help you – you don’t have to go at it alone.

Not All Credits Are Impacted

The Motley Fool article states that only 1% of credit union held auto loans are delinquent. On the other hand, 6.5% of those held by all private auto finance companies are delinquent. How can this be? Credit unions usually have older and more credit savvy borrowers with higher credit scores. Everyone isn’t getting hurt equally. The Bloomberg article breaks it down by credit grade with a chart from the NY Fed:

This chart shows that loan performance is essentially the same for credit scores of 660 and higher. For scores ranging from 620-659 (the red line), there is a definite uptick from 2% in Q1 2016 to more than 3% in Q1 2018. The biggest change in delinquencies is for credit scores under 620, or sub-prime borrowers. You can clearly see the trend has been sneaking upwards since 2014, and 8% of all sub-prime auto loans were delinquent in Q1 2018.

As an auto lender, the more sub-prime borrowers you have, the more susceptible your portfolio is to these economic trends.

How Many Ways Can Your Borrowers Pay?

This may sound like a silly question, but most auto lenders only accept payments via checks or ACH/automatic drafts out of customers’ bank accounts. If borrowers are lucky, the more ‘tech-savvy’ lenders let their customers go online to make one-time payments. For many auto lenders, the way borrowers can pay in 2019 is not that different than the way they paid in 1989. Offering multiple convenient ways to pay can be a gamechanger and significantly reduce the chance of delinquency.

Do you have an online portal where your borrowers can set up recurring payments, not just one-time payments? Can your borrowers make payments with their debit cards or bank accounts 24/7/365, even when your business is closed? With an online web portal, customers can self-serve and “set it and forget it” by scheduling recurring payments.

Do you have an app or text pay so your younger borrowers can pay on their phones?

Some late payments are simply due to forgetting what day it is. You can prevent these late payments with an app that pushes notifications to your customers’ mobile phones on a customized schedule before payments are due. Text pay allows you to send payment reminders and lets your customers initiate and authorize payments with a simple text message. Wouldn’t you like to be top of mind when it comes time for borrowers to choose which bills to pay first?

Answering ‘yes’ to any of these questions could mean lower costs of managing your receivables, a more streamlined approach to your portfolio, and enhanced returns.

Conclusion

Thanks to online portals, mobile apps and other payment technology tools, there are a ton of ways for auto lenders to get paid. You simply have to implement these methods.

If these new payment methods meant

  • less effort spent on chasing down payments
  • lower delinquencies
  • higher returns and
  • fewer collections employees (or fees to an outside party)

…then why wouldn’t you use them?

The economic environment is only getting more difficult for ensuring you collect on what’s due to you. Make it easier for yourself by embracing modern payment technology methods.

What Are Push Payments & Why Do Lenders Need Them?

Thanks to the fintech industry, more firms are making more consumer loans at lower interest rates than ever before. Markets for consumer lenders are competitive both among the fintech newcomers and incumbent lenders. Fintech lenders, in particular, are looking for an advantage in the marketplace. Just providing a service the traditional banks don’t offer isn’t enough to make lenders stand out anymore.  Now big banks are jumping into fintech style lending services as evidenced by Wells Fargo’s FastFlex and Goldman Sachs’ Marcus.

How does a fintech lender compete with the billions of capital the large traditional banks have at their disposal?

Fintech lenders rely on technology and use it as a competitive advantage. One way they can maintain an edge is integrating better technology into their payments systems. Push payment technology represents a huge opportunity in today’s lending climate.

Push Payments v Pull Payments

Both pull and push payments are opportunities to make payments faster, easier, and cheaper for lender and borrower alike. A pull payment is standard for payments processing. In this case, the payment starts with the lender. The lender pulls the money from the borrower’s account after the borrower provides all necessary information and payment authorization.  This is also known as a debit transfer.

A more recent innovation is push payments or credit transfers. A push payment is when the borrower sends the money directly to the merchant one time or on a recurring schedule. Lenders can also push funds to a borrower’s prepaid or debit card. There are huge implications and opportunities for push payments within the consumer and B2B industries. According to Visa, push payments represent a $10 trillion opportunity in the United States. By using push payments, settlement times are faster, and costs go down.

Traditional "pull" vs new "push" transaction


Visa and Mastercard Offer It, But Your Processor Might Not

Visa Direct is one of the key programs in push payments that benefits lenders, yet Visa doesn’t offer the program to everyone. The payments processor must have access and the technological capability to connect to Visa Direct. Visa’s SVP of Push Payments, Cecilia Frew, described the program to LendIt as ‘a real-time push-to-card payment solution that enables online lenders to approve loans and deliver funds the same day’ in what projects to be a $62 billion market of originations for digital lenders by 2021.

Mastercard also has a push payments program, Mastercard Send, where it allows lenders to push a payment or disbursement to a customer’s prepaid card or bank-issued debit card.

The real-time processing and funding of push payments will eliminate the waiting period associated with ACH and paper checks. When using these traditional options, consumers must wait up to 7 days for the loan to close and fund. Few payment processors in today’s market offer Visa Direct or Mastercard Send to their customers, but it would make sense for all consumer lenders and online lenders to have the push payment capability.

Push Payments for Loan Disbursement

Imagine if your loan product is actually a line of credit instead of an installment loan. This would mean that each month as the line is used and paid down, that credit is available to borrow again. Your best borrowers can borrow faster. Credit line lenders can start this process with borrowers and generate interest fees faster thanks to push payments.

How?

The push technology allows a lender to push the funds to borrowers’ debit or prepaid cards for real-time funds disbursements, which they can start using right away. Uber, for instance, uses Mastercard Send (see study p. 4) to pay its drivers.  Not only do the drivers NOT have to wait a week to get paid, they use their debit cards 20% more often and spend 20% more in the following four months.

If you were a lender and could get your best borrowers using your funds to generate interest faster and in higher amounts, wouldn’t this be a win/win? Speed and convenience for the borrower, higher interest and loan fees for you, the lender.

SMB lender, Kabbage, and Retail Point of Sale lender, LendingPoint, use push payments to offer real-time funding to their borrowers. Both get the loan proceeds into the hands of borrowers faster and clearly position the push payment technology as a selling feature against slower funding competition.

Minutes after credit-worthy borrowers are approved, their loans can fund. Minutes after funding, borrowers can start using the proceeds. Many aspects of approving and closing a loan become easier with the technology behind push payments. If you are a lender, this is a tool you need in your toolbox.

Mobile Apps Make Payments Easy

More people are using mobile apps to pay for more items – from morning coffee to car notes to rent – than ever before.

Most of the money that moves around our economy is digital. The Federal Reserve estimates only about 11% of all dollars are in their physical form. This means almost 90% of them are electronic, digitized, and sitting on a ledger somewhere. In 2018, of the US M2 money supply of $14.4 trillion, only $1.7 trillion was in physical cash.

Mobile payments are a big part of this digital trend. Mobile is a growing method of payment acceptance for small businesses, too. This Statista chart shows how many small businesses were accepting mobile payments as of October 2017.

In 2017, ⅓ of businesses accepted mobile or digital payments inside the store. Fewer (less than 30%) accepted these payments online. In person, digital wallet apps (like Apple Pay) were under 15% acceptance.

It’s not just millennials who use these new payment services. Between the millennial generation, the tech-savvy, and those who are unbanked/underbanked, mobile payments are in high demand. Not accepting mobile payments could be a huge missed opportunity for your business.

Mobile app technology lets your customers pay you easily and quickly. And offering convenient mobile app payments could be a huge differentiator for your business, too.

Payment Apps Work with Your Existing Payment Processing

Businesses can access more of those digital dollars from customers through mobile payment apps that are compatible with your existing payment processing. Mobile payment apps, whether it’s Apple Pay, Zelle, or the most popular payment app, the Starbucks app (with almost 21 million users), are making payments easier.

If you sell to consumers, wouldn’t it make sense to include a mobile app as a payment option? It’s fast and convenient for you and for your customers.

The good news is many tech-enabled payment processing firms, like REPAY, can include app payments as part of your overall plan to accept payments from customers. We can white-label our app so it’s uniquely customized and branded to your business. You can collect payments 24/7/365, build brand loyalty and interact with your customers through push notifications on your very own mobile app.

Beat Your Competitors with App Payment Acceptance

In a 2017 survey of popular payment methods, in-store payments were the most popular, yet only accounted for 40% of transactions. This means that all forms of digital payments accounted for the other 60%.

If you have tech-savvy customers or a customer base with high smartphone penetration, you can get a leg up on your competition if you include some of these digital payment categories, such as mobile app payments, mobile messenger app payments, QR codes, or contactless payments. Many of these payment methods can be added to your existing payment processing without much hassle.

Is Your Business Ready for Digital Payments?

The days of only needing to slide a Visa or Mastercard into a physical terminal to process payments are over. Digital payments are here to stay, and they come in many forms. Whether it’s through Text to Pay, QR codes or a mobile app, your business needs to be ready. You can add these payment methods to your business with little effort, and in turn, you’ll give your customers more options and you’ll get paid faster. That’s a win-win in our book.

Collection Firms: Collect Faster with More Payment Options

For your collections business, we’re sure you’d agree that you need to collect faster on your portfolio to make more money.

When your agency is earning contingency fees from clients or tracking payments made when you buy or service a portfolio, speed is vital for good returns. The more calls you have to make, the more time you have to invest in collecting, the lower your returns. The more your staff has to work to collect the same amount of money, the lower your returns.  You get the picture.

And we don’t have to mention what happens when debtors impose call cap limits on you. What you need is simple, fast closing on as many debt accounts as possible.

How can you collect more in less time?

Payment technology enables faster payments, and we know that almost every collection agency out there has an online payment portal if it has near current software. But what about other ways to pay?

More payment processing options and intelligent payment technology give debtors more ways to pay faster, enhancing your returns. Let’s see what other firms in the industry are doing.

Comprehensive CFPB Study of Collection Firms

In July 2016, the Consumer Financial Protection Bureau (CFPB) released a comprehensive, voluntary study of the collections industry. Fifty-eight firms of all shapes and sizes – from law firms to very small businesses of less than 10 employees to huge collection agencies – participated and shared information with the Agency on how they do business. Here is a copy of the study you can check out for yourself.

In the study, 43% of firms reported debtors imposing call limits on them. Imagine eliminating this as an issue…

From the chart, you can see that the larger the collection agency, the more likely a call cap came into play. Is that because larger agencies have bigger clients who may know about FDCPA rules? Or maybe smaller agencies have less debt savvy customers who don’t know the call cap rule?

Payment Technology = More Options

While accepting debit and credit card payments via an online portal or over the phone is standard for collection firms, there are many other great options on the table. You need to offer choices and allow debtors to make payments through:

  • ACH
  • Voice Recognition Software over the phone (it’s called IVR)
  • Text to Pay
  • Smartphone Apps

The good news is that tech-oriented payments firms will give you access to all these payment methods, while offering the standard methods like online portals.  Some companies offer even more advanced options and enable consumers to pay through their mobile apps, or they can help you develop your own app. A tech-driven payment processor means one account for all these payment options, which keeps things simple and straightforward.

In the CFPB study, 86% of firms surveyed had an online payment portal, but they had to pay an average of $50 per month in additional fees for an ACH gateway and another $30 per month for credit card processing (CFPB Study, p. 33-34). These fees are paid to the different firms before the first transaction ever goes through their systems.

Does your firm have multiple payment options like these?

With IVR, for instance, one of your employees could negotiate a deal with a debtor and then immediately move the debtor to the IVR software prompts within the same call. While your employee calls the next debtor, a payment is made from the first debtor in a one call close. Take your payment technology one step further and employ a virtual debt collector tool that will automatically negotiate the deal and accept a payment without any employee interaction.

This is maximum time management and effectiveness of your staff AND you are collecting more money faster from a one call close. Consider how much more business your staff can do with easier payment options and more advanced technology.

Some other questions to consider to increase your speed of collection include:

  • Is your payments platform integrated with your collection management software?
  • Are you giving the debtors many convenient options to pay?
  • Is your payments platform up to the task to enable one call closing with ease for the debtors?

Payment processing has advanced far beyond swiping a card in a physical terminal. For collection firms, this is an opportunity to take advantage of the better technology out there. Processors today can handle multiple payment options faster, enabling one call closing by your staff for maximum effectiveness and ROI for your firm.

A New Approach to Service for Auto Dealers: Automated and Unassisted Payments

There’s no doubt that consumer preferences are evolving quickly while expectations for high quality service continue to rise. Dealers not only have to identify the right mix of product and service offerings to attract new customers, they must consider how to effectively nurture these customers past the initial sale to develop long term relationships and establish recurring revenue streams.

It’s a known fact that it’s less expensive to keep an existing customer than to obtain a new one. If that’s the case, how can dealers keep their customers coming back for more? It’s relatively simple – by improving the customer experience and removing the friction involved in every customer interaction.

Susan Perlmutter, Chief Revenue Officer of REPAY and long-time player in the auto industry, recommends evaluating the experience a dealership creates when servicing vehicles. “Servicing a car can be a painful experience due to the number of interactions required between dealership personnel and the customer,” Perlmutter explained. “Technology and a streamlined process can make the experience much more enjoyable for customers.”

Alternative Ways to Pay

After a dealership services a vehicle, a customer must often wait in multiple lines before paying for the service and picking up the keys to the car. Simply reducing the number of touchpoints that a customer has with dealership personnel can make for a much more pleasant experience and efficient process. Dealers should consider offering alternative payment options, such as online payments or text payments, so customers can prepay for the services prior to picking up the vehicles.

These payment methods will allow customers to pay onsite without waiting in line or from another location if they choose to leave the dealership. They’ll be able to access the dealer’s secure, custom-branded online payment portal from any computer, laptop or mobile device. Depending on the payment processor, dealers can even send text messages to customers to alert them of the progress and notify them when the service has been completed. Customers can reply to a text message with a one-word response to quickly and securely initiate and complete a payment.

A Competitive Advantage

Providing these alternative ways to pay is not only convenient for customers, it’s savvy for business operations as well. Implementing unassisted payment methods will free up personnel resources and reduce the amount of data entry errors that can typically happen when payments are handled by humans.

Some dealers are hesitant to replace the human interaction with an impersonal technological experience, but they shouldn’t lose sight over changing consumer preferences. People are busier and more connected than ever, and they prefer fewer steps in a process. If executed the right way, the automated payment experience can be customized to individuals and can feel just as personal as a face-to-face transaction. Providing a seamless and easy payment process can serve as a differentiator and competitive advantage for dealerships by providing customers with a hassle-free experience, leaving them delighted and coming back for more.

Payment Trends: Contactless and Digital Payments

Nearly every business in the business to consumer (B2C) space needs to have a payments option and most in the business to business (B2B) space need one, too. What used to be a convenience is now a requirement. The lack of many options not long ago meant that B2C and B2B payments were simple and streamlined. It used to be easy for a business. Sign up with a processor, get a terminal in your store or office, process payments and move along to the next initiative. But things are changing…

Payments Options Changing with Technology

Consumers have choices like wearable technology, mobile payments, contactless payments, online payments for e-commerce, peer to peer payment services, mobile wallets, RFID (radio frequency identification) technology, NFC (near field communication) technology, and non-bank payments providers. These choices make it tough for a business that wants to accept payments to figure out how to get to their customers in a way that is both convenient for the customer and cost-effective for the business.

One way to figure out how to reach your customers is to look at some of the trends going on in payments.

Contactless Payments on the Rise but Slow in the US

The US is way behind much of the world in the area of contactless payments. The leader is Australia, who according to a Westpac Bank study of their cardholders, use contactless payments 92% of the time as of December 2017, including in over 90% of face to face payments.

PaymentsWeek cites a study by The Economist that by 2022, contactless payments may get up to ⅓ of all electronic payments in the US. Why such a big discrepancy between Australia and the US?

  • Americans use more cash than other countries thanks to the US Dollar’s strength and its position as the world’s primary reserve currency.
  • Americans have big concerns over digital security. With so many digital hacks reported every month on the news from financial and other providers, this should come as no surprise. The American Express 2017 Digital Payments Survey indicates 37% of people have abandoned an online purchase due to security concerns. That’s a big number and a problem that we, as a country and an industry, will need to solve.
  • Here in the US, we have every potential payment option known to man. If you were in a place like Kenya, who depends on cellular technology for payments and banking, then you’d have limited choices. You’d select the best provider available, the innovative fintech payments provider M-Pesa. Australia isn’t Kenya, but their big banks like WestPac and Macquarie, have embraced these technologies, making it easier for the consumer to adopt contactless payments. They don’t have payments options overload like we have in the US.

The US has room for tremendous growth in this area. The trend is telling us that if contactless payments are a good option for your retail business, or even a business where you travel to the customer, like a plumber or electrician, then you could be early and benefit greatly if you embrace this payments trend.

Digital Wallet Adoption Slow

JP Morgan commissioned a study, The Intersection of Payments and Commerce in the Digital World, to help its merchant customers better understand and prepare for tomorrow’s payment opportunities. Here are some of the more important pieces from the study:

  • Consumers like the idea of digital wallets and payments in theory, yet adoption is slow with only 16% to have ever used a digital wallet. The study cites digital security as a primary concern that limits adoption, as well as low levels of understanding about digital wallets.
  • Only 38% of those surveyed considered themselves informed about digital wallets and how they work.
  • 62% of those surveyed prefer debit or ATM cards and 53% of those surveyed still prefer to use cash as their primary method of payment.
  • Of businesses larger than $20 million in revenue, 56% accept digital wallets as a form of payment while only 25% of smaller than $20 million in revenue businesses do. The biggest concern for small business adoption is the cost associated with upgrading systems.
  • 69% of people surveyed believe they will be making the majority of their payments through digital wallets within 5 years, making digital wallets the #1 payment choice tied with credit cards.

The trend is moving slowly upward, but increasing clarity and improved understanding should exponentially increase the number of digital wallet payments.

Are Digital Wallet and Contactless Payment Options Right for Your Business?

Two of the big advancements in the technology of payments is the digital wallet and the use of contactless payments. When implemented properly, these tools help your customers in new ways like

  • Faster checkouts
  • Easy to use/install rewards points or loyalty programs
  • Convenience
  • Couponing and easy gift card buys and redemption

Local retail stores and service providers, like the coffee shop or the local electrician, and small businesses, in general, can get way ahead of the trend and their competitors once they decide to adopt these technologies. If only 1 out of 4 lower level revenue businesses have these technologies, then you can differentiate yourself even more from your competitors in the marketplace.

Business Intelligence: What can we tell you about your customers – and your business – that you don’t know?

Business intelligence (BI) seems to be the hottest new buzzword in town and can be found across a multitude of industries and platforms. For those who don’t understand it, or perhaps for those who haven’t had the chance to fully realize its purpose and impacts, it can be vague and often intimidating. Upon hearing the term, you may imagine a robot spitting out data or an unending sequence of unreadable formula tables and statistical jargon. These preconceived notions may not be entirely misplaced, but the true beauty of BI lies in the analytical simplicity of its end results.

BI refers to the technologies, tools, infrastructures, and applications that are used to collect, store and analyze complex data sets to support better, more informed decision making. The ultimate outcome of BI is to package the data into easily understandable results to provide insight into business best practices and trends.
But how does one start using BI to take advantage of all it can offer? The capabilities of BI are endless and can often be overwhelming with no clear start or finish line; in fact, the entire course can seem hazy and insurmountable at times. That’s why Susan Perlmutter, Chief Revenue Officer of REPAY, recommends business leaders partner with a trusted vendor who is already collecting important data points about their businesses and customers during normal, day-to-day operations.

“It’s best to find a partner who can not only collect the data on your behalf, but who can also analyze and package that data into digestible, easy to understand pieces of information that can translate into best practices, trends, and action items for your business,” says Perlmutter. She is surely no stranger to the advantages of BI as REPAY continues to build robust business intelligence services for its clients.

REPAY, an Atlanta-based payment technology company that offers omnichannel payment services wrapped up in the most secure and advanced technology on the market, is already using BI to identify both micro- and macro-level trends. The company primarily serves clients in the consumer finance, auto finance, and collections industries where most payments are made on a recurring basis to repay some form of debt. “By using BI in conjunction with payment data, we can tell you an awful lot about your business and your customers that you probably don’t know,” explains Perlmutter. “Payment data can provide insight into consumer preferences and behaviors and can measure ROI on technology and personnel resources, which in turn can help businesses make more sound decisions regarding marketing efforts, staffing levels, and future investments.”

By analyzing a merchant’s payments, REPAY can identify consumer payment preferences, including how, when and through which channel a specific type of consumer prefers to pay. REPAY can also detect potential usability issues within payment channels. For example, if consumers initiate payments on one channel, but complete those payments on another, it may suggest that there is an obstacle impeding the payment process.

BI can provide cost analysis, another important aspect for merchants who accept electronic payments. REPAY’s BI platform can analyze the cost of payments through each channel, comparing the cost of agent-assisted payments to the cost of fully automated, unassisted payments. This valuable insight can measure ROI and suggest where additional investments should be made.

According to Perlmutter, “The opportunities of business intelligence as it relates to payments are infinite. We can successfully predict when businesses will receive the most payments and when payments will most likely be approved, and based on that data, we can offer action plans for effective account management, communication strategies and marketing tactics.” She’s most excited about turning that data around to reward consumers. REPAY can evaluate payment data to build a reward-based system unique to each merchant to reward consumers who practice ideal payment behaviors, such as paying on time for six consecutive months.

The future of BI is promising and powerful, and it is thriving in our own backyard. Just as Atlanta has become the hub for payments, it soon will be known as the epicenter for business intelligence. Millions of transactions run through Atlanta every day and the number of data points associated with those transactions are astonishing. As a society, we are on the verge of unlocking invaluable information that can not only predict individual business operations but could potentially predict much larger shifts in the economy, such as periods of GDP growth or recession. It is not too premature to think that Atlanta could be the leader in those national and global conversations.

REPAY aims to harness the power of business intelligence to help its merchants grow and prosper. REPAY’s BI platform provides its merchants with both an overarching 30,000-foot view of economic and market trends and a granular analysis of their immediate ecosystems comprised of individual consumers and payments.