The scale of the UK vehicle finance industry has unnerved many experts and fuelled whispers that, if left unchecked, it could have the same impact on the economy as the overheated and under-regulated mortgage market did in 2007/8.
In 2016 alone, Brits borrowed a record £31.6bn to buy cars – up 12% on the year before. With a significant rise in consumer debts, more needs to be done to ensure clarity and a better understanding of the vehicle finance process, and the commitments consumers are making.
Although there hasn’t been any action yet to overhaul the market’s regulations and operation, the prevailing thought is that vehicle finance providers must do more to address the way they engage with customers.
The solution could, in part, lie in helping vehicle finance providers raise their profiles among consumer audiences. Currently, these providers sit in the background of most purchase decisions – a hidden participant brought in only at the end of the buying process. Ask a member of the public to name a vehicle financing provider and they’d struggle to identify even one. Given the increasingly key role they play in car ownership (nine out of 10 private car buyers are now using personal contract plans), this seems wrong.
Compare this with the relationship consumers have with their banks and the difference is immediately clear. What’s more, the fact that they are more likely to have a larger credit arrangement with their vehicle purchasing provider company makes the situation even more wrong!
More engagement is needed. While retail banks have come under significant levels of public and regulatory scrutiny, they have evolved their offering, doing their utmost to build trustworthy and transparent relationships with their customers as a point of differentiation.
Up until now, vehicle finance processes haven’t had to be transparent. Too often, customers are simply told which vehicle finance provider they must go with, with the dealer making this choice. As a result, consumers are left feeling forced into signing whatever’s in front of them without considering other options.
Better vehicle finance options
Consumers must be made more aware of the choices they have in financing their vehicle purchases. This way, they can make more informed decisions about their money management, and ensure that they’re getting a deal that works for them.
Strong regulation in the mortgage market has delivered choice and transparency, particularly with regard to the commission, fees and procurement payments that introducers or brokers receive.
Indeed, with the trend to finance continuing to increase – and car ownership no longer seen as a capital investment – which vehicle finance provider you choose will become an increasingly important choice.
Of course, making these choices must be made as easy as possible for consumers. Bringing the process online – moving from the hands of the dealership into those of the consumer – is a necessity. Adding a layer of simplification will also be crucial. Our own research found that half of consumers find vehicle finance agreements complicated and difficult to understand. Providing an easy-to-use step by step digital process that outlines the whole vehicle finance process from start to finish is a sure way of decreasing complexities around the process.
Remaining competitive in the market
Adding a self-service element is critical, and a guaranteed way to ensure customers are engaged and feel like they have control of the entire process. Very quickly, we will see customers becoming more comfortable with their vehicle finance provider, and feeling like they’re receiving quality service and great engagement.
This is supported by our research, which found that 56% of consumers would prefer to manage their finance online. Providing a digital finance solution has not only become important to ensuring consumer debt doesn’t spiral out of control, it’s quickly becoming a necessity to remaining competitive in the market.
Ultimately, if a customer has a pleasant experience with a provider, it’s likely they will return to the same provider. Building customer engagement is therefore not only a way to remain competitive, but a method of building loyalty.
While it may seem a lot of work and time transferring services to engage customers online, the benefits of implementing vehicle finance software certainly outweigh any negatives. Moving to a digital solution reduces complexity, builds customer engagement, and will ensure that consumers are more in control of their finances, which would tick all the boxes for the FCA.
Read my blog post where I look at challenges associated with a new market that has grown aggressively, and how the vehicle finance industry is no different: The growth of vehicle finance: a danger to the UK economy?