Sopra Banking Software is Taking a Banking Technology Approach to Powering the Lending Ambitions of U.S. Auto Manufacturers and Financial Institutions

Banks and lenders have long relied on auto financing to attract customers, introduce new revenue streams and expand the markets they’re in.

Wholesale auto financing specifically, which is the process of providing financing to car dealerships to purchase their floorplan inventory, offers a highly lucrative revenue stream to banks, lenders and auto manufacturers. But financing and managing this inventory has historically been dependent on heavily manual and inefficient processes.

These legacy processes, according to Sopra Banking Software’s Head of Specialized Finance James Powell, are keeping auto manufacturers and financial institutions from entering wholesale financing and staying competitive if they’re already in the space. In fact, some banks have already thrown in the towel on wholesale auto financing altogether.

“Like banking, the backend of auto financing is dependent on decades-old, manual processes that are driving inefficiencies throughout the entire business. When we transform how auto manufacturers and lenders provide financing to dealerships and manage their business operations, we’re simultaneously giving them access to new business and revenue opportunities,” said Powell.

Sopra Banking Software has spent the past decade working with more than 1,500 financial institutions in 100 countries worldwide, including Barclay’s, Santander, Credit Suisse and Bank of Africa, to digitize their offerings and reimagine their role in today’s evolving industry. Now, the company has officially planted its flag in the U.S. auto finance market, where it’s taking a banking technology approach to eliminating critical inefficiencies that plague auto companies and financiers.

We sat down with Powell to learn more about the digital opportunities that Sopra Banking Software is opening companies up to within the wholesale auto finance industry.

How is Sopra Banking Software’s approach to digital banking influencing your work with auto manufacturers and lenders?

When we work with banks and other financial institutions to digitize the way they operate, we’re not only driving efficiencies within the company. Our work is also opening these companies up to new opportunities to explore digital business models (e.g. Banking-as-a-Service, embedded finance) and expand their roster of customers.

The same can be said for our approach to digitization in the automotive industry.

For example, digitization has made it so that car manufacturers are no longer dependent on banks or other third-parties for indirect loans. Through what’s known as ‘captive financing,’ they can now extend loans directly to customers at the moment they decide to make a purchase. They can do so on their own established sales channels (such as a manufacturer-specific car dealership) with their company’s branding, rather than that of a bank or lender. This results in a more streamlined, user-friendly experience for consumers, and less overhead cost for manufacturers.

In the banking industry, digital transformation is due in large part to internal pressure from fintechs and other challengers that offer digital-first financial experiences. What’s driving the transformation of the auto finance industry?

Digital transformation has taken hold of auto financing a bit differently than the wider financial industry, as it’s largely happening from the outside-in. Where banks are looking to digitize because of industry competition between traditional banks and fintechs, auto financiers are feeling the pressure from their consumer-facing counterparts. New, digital-first features and innovations in cars themselves are leading auto companies to reevaluate the way that they do business on the backend.

There’s also indirect pressure from consumers to transform the way auto companies do business. Consumers want the cars they drive to have digital screens and automated features, rather than analog buttons and manual gears. And they expect a similar digital experience when they shop for cars, too—with embedded finance options for a frictionless purchase.

To offer these kinds of digital-first buying experiences, companies need to transform both backend and consumer-facing, frontend experiences. This means digitizing everything from how manufacturers and dealerships operate, to how banks and lenders finance.

Why has it taken so long for the auto finance industry to start to digitize decades-old, manual backend processes?

Many auto financing processes are built on top of legacy core systems, which can be very costly, disruptive and risky to replace. Even though these systems don’t move as quickly or as efficiently as newer digital models, they hold years of consumer financial data and processing capabilities that lenders depend on to create and manage loans. As a result, many auto finance companies have put off digitizing them, even though the benefits of transitioning this data to digital, cloud-based models significantly outweigh the time and resources required to do so.

One of the more time and resource intensive processes in the auto financing business is inventory auditing. Currently, this process requires third-party auditors to visit dealerships’ showrooms in-person to manually inspect, analyze and report on the status of each financed vehicle on their lots.

As you can imagine, this has been one of the more difficult processes to digitize. But it’s possible to significantly improve the manual inefficiencies that occur during this process—while reducing cost and lessening the corporate carbon footprint along the way. Companies just need a modern and flexible solution.

Can you talk more about digitizing the auditing process? What does it look like?

Our technology powers virtual ‘self-auditing’, which means that dealers themselves can audit inventory without the need for field-based auditors. Dealers can access NFC (near-field communication) tags and take pictures and videos of their current fleet to share with lenders as an audit of their inventory.

Digitizing inventory auditing drives both time savings and cost savings—but there’s other benefits to dealers and lenders beyond that. For instance, digital auditing solutions (including ours) often leverage automated, AI-powered processes, which provide more frequent and accurate inventory analyses than manual processes do. Beyond increasing accuracy, this also means improved financing rates for borrowers.

What are some of the other benefits of digital auditing?

Physical auditing processes have kept many lenders from working with dealerships nationwide because of how time-consuming and expensive it is to send auditors cross-country. Digital auditing enables them to deploy audits to dealerships immediately, without any physical interactions, so they can easily expand their services into new U.S. markets and even overseas.

Digital auditing can also play a role in lessening the auto industry’s environmental impact.

Traditional auditing processes can take a toll on companies’ carbon emissions due to the frequent and extensive travel that auditors must do. Eliminating this from the equation, especially when it’s happening as often as every 28 days for each lender, can have a drastic impact on companies’ overall carbon footprint.

With lending services now more accessible, are there opportunities for companies that haven’t traditionally been in auto before, to now enter the industry?

Absolutely. Auto financing has been a notoriously difficult space for financial institutions to break into. There’s a long list of barriers to entry, including costly business practices, complex, legacy systems, and a lack of intimate knowledge about the auto industry.

It’s been equally challenging for existing lenders to compete in this space once they’ve entered it. And for non-financial institutions, like auto manufacturers, to extend their own financing to consumers with limited experience in the financial space.

Our technology enables companies within each of these scenarios to enter the auto finance industry with ease, and stay competitive once they get there.