An Oracle White Paper November Enhancing Customer, Distributor and Auto Lender Delight

Transcription

1 An Oracle White Paper November 2012 Enhancing Customer, Distributor and Auto Lender Delight

2 Disclaimer The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle s products remains at the sole discretion of Oracle.

3 Introduction... 2 State of the US Automotive Finance Market... 3 Drawbacks of Legacy Auto Lending Systems... 4 Transformation to a Consolidated Auto Lending System... 4 Drivers for Transformation... 5 Benefits of an Integrated Consumer Lending System... 5 Oracle Financial Services Lending and Leasing... 6 Enabling an End-to-End Auto Lending System... 6 Addressing Needs of all Stakeholders in the Auto Lending Lifecycle... 7 Managing All Process Stages of the Auto Lending Lifecycle... 7 Success Story Conclusion... 12

4 Introduction In recent years, the automobile financing industry has been witnessing a healthy increase in loan portfolios. This turnaround has been facilitated by the growing influence of information technology. With automation becoming the order of the day, traditional screening, origination, and collection processes have matured with automated credit scoring, underwriting and loan processing. As the lending and leasing market grows in complexity and competitiveness, companies need comprehensive, unified solutions that can manage processes across products and divisions while delivering accurate, actionable information from a single source. These solutions have progressively lowered the average cost per loan and lease and created a consolidated analytical view of information as more scalable, secure, and flexible technologies have become available. This paper examines the typical challenges faced by the US auto lending industry today and how Oracle Financial Services Lending and Leasing solution focuses on providing superior experience to the Customer, the Distributor and the Auto Lender through its comprehensive and unified solution. Though the paper focuses on the US market, the business drivers for adopting an advanced auto lending solution extend beyond the boundaries of the US. Oracle Financial Services Lending and Leasing enjoys a wide customer base and global presence, catering to the unique requirements of auto lenders worldwide. 2

5 State of the US Automotive Finance Market With the improvements in macroeconomic trends indicating an impending economic recovery along with an increasingly ageing car population ready for replacement, the US auto lending market is on an upswing with open loan portfolios showing healthy increase in total balances (up $27 billion) and has been seeing historic lows for delinquencies. Since bottoming in November 2009, total light motor vehicle sales on a 12-month rolling period increased by nearly three million vehicles to 12.7 million in December There is a pent up demand in the market with the average age of cars in the US at 10.2 years and people junking old cars and registering for new cars at an annual rate of 14.9 million and 13.2 million respectively. From the quarterly repossession data, there has been an overall 25 bps improvement in automotive delinquency. As it is, auto financing in US is a pretty fragmented market where 72% of loan funded is made up of top 200 auto lending finance companies. With the growth in the business, it is witnessing a lot of new entrants, thus further fragmenting the market. With the rising number of players, a customer who has to wait for an automobile financing approval may walk away from the lender in search of a better, faster deal. There is a growing pressure on the auto lenders to retain and enhance their market share, leading to a higher share of sub-prime financing, eventually leading to a higher risk for lenders and investors. The credit has continued to loosen with the average credit scoring showing a continual decrease and an increase in sub-prime share financing (11% on new cars and 4% on used cars). Having learned from the experience of the housing sector, auto lenders adopted more stringent underwriting standards, consequently lowering delinquencies and repossession. Statistics in the public domain also indicate that auto loans in the turbulent years during and following the recession have outperformed mortgages and revolving credits, witnessing fewer delinquencies and charge-offs. Although the proportion of vehicle loans to credit challenged customers actually increased by 14 percent in the first quarter of 2012 over the previous quarter, a lower loan-to-value ratio indicate that lenders are still adopting a cautious approach. All these business drivers are increasingly putting the auto lenders under tremendous pressure to transform business to meet market demands. 3

6 Drawbacks of Legacy Auto Lending Systems In this environment of cautious optimism, auto lenders need to place increasing emphasis on the efficiency of their operations and productivity of their workforce to offset the shrinking share of the loan pool. They need to improve distributor engagement, streamline lending processes, reduce cycle time, and effectively track and minimize delinquency rate. Reducing customer acquisition costs while providing uniform on-boarding experience is also a priority. However, the fragmented nature of legacy systems often becomes a roadblock. Inadequate business efficiency: Legacy systems that have discrete business processes for the origination, servicing, collection and reporting stages of the auto lending lifecycle tend to operate in silos, leading to systemic inefficiencies. Disjointed systems are typically rigid and inflexible to changing business conditions. With data spread across multiple systems, it becomes difficult to obtain a holistic view of the customer s profile, diminishing the opportunities for cross-selling and up-selling. Prolonged customization periods to get the system behave in the desired way severely compromise the way the organization can react to the changing environment. Growing volumes and complexities of the auto lending business demand the system to integrate with other external systems efficiently to give the business the required depth. With fragmented systems, the integration becomes much more complex. Revenue leakage is another cause of major concern in the fragmented lending model. Due to inadequate automation across the process stages of the lifecycle, the lead time required for the conversion of a customer increases, by which time the customer might walk away from the lender in search of a better, faster deal. Similarly, the inherent difficulty and subsequent time lag in the system to add a new product can mean a delayed time to market, translating in a lost market share. Apart from the leakages arising out of non-conversion of customers, certain systemic deficiencies can also lead to significant revenue leakages. Inability to handle all types of fees and charges applicable to the business and a poor collection management are some other avenues of revenue leakage. For instance, a fee waiver offered by a dealer may not be migrated to the collections system, or a time lag in reporting of a prospective customer s credit score could lead to rejection, consequently translating into losses in revenue. Transformation to a Consolidated Auto Lending System Auto lenders need a comprehensive consumer lending system that streamlines all aspects of automobile financing from origination to servicing and collections across a single relational database, thereby improving business efficiency and reducing revenue leakage. In an integrated system, data is captured only once and reused on multiple occasions across the entire lifecycle. Data management is one of the most cost-intensive and time-consuming activities in the lending lifecycle, and consolidated data handling can improve a system s efficiency significantly. Given the growing complexity of the auto lending eco-system, it is also imperative for the system to be able to manage multiple billing, collections and cash applications platform. Consolidated origination, servicing and collections within a single loan system facilitate reporting and tracking of dealer reserves, recourse, insurance and collateral, thereby eliminating revenue leakages arising out of gaps within the system. Since the entire implementation is handled by a single service provider, customization of workflows, status codes etc. is also simplified. 4

7 Drivers for Transformation Transformation to a consolidated auto lending system is driven by both business needs and technology needs of an auto lender. Improved compliance management, better customer servicing and faster timeto-market are the key business drivers. To achieve improved customer intimacy and competitive differentiation, auto lenders need an end-to-end customer lending solution supporting a Service Oriented Architecture and offering extensibility and scalability on an open platform. Drivers for Transformation Benefits of an Integrated Consumer Lending System A consumer lending solution integrated from front-end origination through servicing, collection and charge-off is capable of processing transactions and data in less time, enabling increased productivity. With increasingly stringent regulatory standards adopted by the auto lending industry, a single point for data entry can help maintain data integrity across all solutions. Consistent data ensures superior reporting capabilities and enhances compliance analysis and risk management. On the front end, an application received from an auto dealer is automatically entered into the system, generating a request for a credit bureau report on the applicant and an evaluation of the vehicle. An automated origination system expedites the underwriting processes that use electronic communications with multiple channels and vendors, and automates calculations like credit scores to decrease the turnaround time for credit decisions and minimize credit risk. An in-built decisioning capability allows the auto lender to build in individual criteria to evaluate risk. Clearer understanding of the business worthiness of the dealer enables better dealer/broker management. Work queues can be built dynamically to offer the users a completely paperless workflow that can be tracked, analyzed, and audited. The underlying SOA can provide interoperability, extensibility, and standardization. An integrated system provides the auto lender with a 360-degree view of the customer s profile, enabling improved customer servicing. With a holistic customer view, the lending organization s staff can explore opportunities for cross-selling and up-selling, transforming them into knowledge workers. It can also offer the management valuable insights regarding the auto lending business. 5

8 Oracle Financial Services Lending and Leasing Oracle Financial Services Lending and Leasing enables automobile financing institutions to provide better service and minimize delinquency rates through comprehensive and flexible processing of booking, disbursement, and payment. It centralizes origination functions, enabling them to improve customer experience and reduce transactional overheads. It can be implemented as a specialized point solution or as part of a core banking solution such as Oracle FLEXCUBE. Oracle Financial Services Lending and Leasing has functionality for managing installment loans, supporting closed-end, fixedrate loans for multiple, user-defined collateral types. Its functionality for lines of credit allows organizations to manage a portfolio of revolving credit programs such as equity lines of credit, in-store revolving credit programs, and overdraft credit lines. The functionality for leases can support consumer leases with sophisticated termination and re-marketing programs. Enabling an End-to-End Auto Lending System By mapping concepts to workflows, Oracle Financial Services Lending and Leasing creates an end-toend solution built on proven, configurable processes for the complete auto lending lifecycle including origination, servicing, collections and asset management. Predefined finance processes reflect global best practices that optimize the customer experience and grow your auto lending and leasing business. A robust business rules engine lets you define rules for each business process adhering to your internal practices and policies, which improves workflow management and increases automation. Oracle Financial Services Lending and Leasing: Functional Architecture 6

9 Oracle Financial Services Lending and Leasing integrates directly with your general ledger system. All transactions are automatically posted to appropriate general ledger accounts based upon your specific, user-defined business requirements. This seamless interface creates a streamlined and efficient process that minimizes the potential for data entry error, while improving financial reconciliation. From the study of the prevailing business condition and the business problem facing industry, one can conclude that for any system to succeed in the industry, it needs to address the factors of business agility, dealer management, operational efficiency, an agile IT, empowered staffs and an informed management. Oracle Financial Services Lending and Leasing by design through its architecture and functional depth addresses all these factors individually or in combination. Oracle Financial Services Lending and Leasing has a state of the art, n-tier, service-oriented architecture (SOA) with a browser-based user interface, a back-end relational database, and a middle tier of business components. It uses Business Process Execution Language (BPEL) for modeling the business process and provides a high level of configurability by using open standards-based middleware. In addition, Oracle Financial Services Lending and Leasing brings together a robust technology platform and extensive experience in the financial services industry to provide your business with predefined processes that represent industry leading practices. Addressing Needs of all Stakeholders in the Auto Lending Lifecycle Oracle Financial Services Lending and Leasing solution addresses the needs of all constituents of the auto lending lifecycle, including the customer, the dealer, the organization staff and the management. In doing so it comprehensively empowers the auto lenders to transforms their business. It delivers enhanced user experience through solution enablement across channels, providing a single stop lifecycle processing, quick credit scoring and decisioning along with scenario analysis. It empowers and encourages the dealers to sell more through wholesale floor planning, flexible commissions, subvention and an efficient bad debt management. It improves productivity of the staff by its superior operational control, ease of product modification for a quick product launch, automatic alerts and notification framework for pending items and consistent real-time customer data across all access points with a completely extensible product reducing any dependency on the product vendor for required changes. It keeps the management team informed through personalized views of the business, dedicated dashboards for management insight and provides an efficient risk and compliance management. Managing All Process Stages of the Auto Lending Lifecycle Oracle Financial Services Lending and Leasing addresses all the crucial components of the lending lifecycle processing starting with origination to servicing of the transaction, collection of receivables and finally asset management. It allows seamless access across multiple channels through internet banking, phone banking and walk-ins in the branch or through an enabled broker/dealer network. 7

10 Origination: Enhanced User Experience Backed by a Rich Workflow and Interface Oracle Financial Services Lending and Leasing Origination allows financial institutions to accept, process and decision credit applications in a paperless mode, with a single data entry process. The credit guidelines can be setup in a customized way in the system to ensure compliance. The credit decisions can be made automatically or manually. All of these applications are controlled by a flexible workflow management system that can be configured to reflect the step in the company s underwriting processes. As part of the origination process, Oracle Financial Services Lending and Leasing provides the lending institution the ability to configure and change the workflow and add pricing strategies, user responsibilities and administrative override parameters. Based on certain transaction events like status changes, actions can be triggered. The applicant can be linked to existing customers to maintain and maximize the customer relationship. The origination data is linked to funding processes and the servicing module in real time. The funding checks can be processed either through an external accounts payable system or can be sent directly through Automated Clearing House (ACH) payments. ORACLE FINANCIAL SERVICES LENDING AND LEASING ORIGINATIONS: KEY FEATURES FUNCTIONALITY BUSINESS VALUE Configurable scoring model Flexibility to create scoring models Auto decision Decisioning based on the score Quicker decision due to auto decisioning Ability to define exceptions to send to manual decisioning Risk-based pricing Pricing based on the company credit policies Configurable business rules Quicker response to changing business processes Prescreening of applications based on rules thereby improving efficiency Reduced underwriter time spent on application Scenario analysis Quick conversion from the lead to an application user Improved productivity by elimination of duplication of work Multiple offers Multiple offers enabling higher conversion rate Multi-channel origination Support for internet banking, mobile banking, phone/walk-ins, branch, broker/dealer channels Seamless transition across channels Offline data capture Support for third-party interfaces Improved usability Compatible with credit bureau, valuation guides and credit card payment interfaces Document management Configurable templates and delivery methods Image maintenance 8

11 Configurable workflow setup Improved workflow management Dynamic work queues for paperless workflow that can be tracked, analyzed, and audited Servicing: Improved Customer Service and Personnel Productivity Oracle Financial Services Lending and Leasing Servicing allows the auto financer to manage all customer information in a centralized location to assure data integrity and to simplify the customer service and management processes. A unified customer record with a common customer relationship view across all financial products ensures that the entire relationship is always visible, allowing the institution to provide better customer service, resolve queries and improve service personnel productivity. ORACLE FINANCIAL SERVICES LENDING AND LEASING SERVICING: KEY FEATURES FUNCTIONALITY BUSINESS VALUE 360-degree customer view Comprehensive relationship view across all financial products Opportunities for cross-selling and up-selling Tailored advise Robust and real-time transaction processing Configurable security controls by transaction Back-dating capability can reduce manual validations by automatic re-calculation of interest, late charges and fees Supports transaction authorization (Maker-Checker concept) for manual transactions only, such as monetary (except payments) and non-monetary transactions Scenario Analysis in rescheduling Helping customer understand the change by simulating of a loan. Multiple options for payment processing Supports post dated cheques, lockbox, ACH, credit cards, Western Union and regular mail Flexible and configurable fee rule definition Improved revenue generation Self-service options to consumers and other agencies Interface to IVR Web access to account information User-defined customer service queues to route consumer requests to appropriate personnel Flexible interface with General Ledger Behavioral scoring Improved understanding of customer by forecasting favorable verses accounts performing poorly. Configurable workflow and queue management Increased efficiency and control Quicker adaption to changing business environment 9

12 Collection: Managing Delinquency with Improved Productivity Oracle Financial Services Lending and Leasing provides comprehensive functionality to support specialized collection-related activities, including tracking all occurrences and related histories associated with bankruptcies, repossessions, foreclosures and deficiency (bad-debt) management. ORACLE FINANCIAL SERVICES LENDING AND LEASING COLLECTIONS: KEY FEATURES FUNCTIONALITY BUSINESS VALUE 360-degree customer view Comprehensive relationship view across all financial products Single view of information for data consistency across transactions, comments, contacts Workflow queues User-defined customer service queues to route consumer requests to appropriate personnel Work allocation to multiple users Supervisors authorised to review customer view Support for high volume and speciality collections Interface with dealer applications Automated collection letters Configurable and structured action and result codes Complete history of call actions Reporting Improved vendor management Improved work order processing, follow up and invoicing Self-service options to consumers and other agencies Interface to IVR Web access to account information User-defined customer service queues to route consumer requests to appropriate personnel Flexible interface with General Ledger Behavioral scoring Improved understanding of customer by forecasting favorable verses accounts performing poorly. Configurable workflow and queue management Increased efficiency and control Quicker adaption to changing business environment 10

13 Success Story Leading Auto lender Leverages Oracle Financial Services Lending and Leasing to Support Growth and Drive Business Company Overview A private auto lending company based in California A wholly-owned subsidiary of a Minnesota-based financial institution, ranked in the top 50 in terms of assets managed. More than 3,100 active dealer relationships originating loans to consumers in 30 states. As on October 2011, the company had originated US$239 million in auto loans Business case Solution offering capability to make changes at the customer s end Workflow and business rules to meet requirements of the parent financial institution Application supporting growth strategy and offering technical flexibility to meet internal demands Oracle Solution Oracle Financial Services Lending and Leasing Comprehensive auto lending application to cater to the end to end auto lending life cycle Seamless integration with various applications Business Benefits The Auto Finance business of the entity grew by100% over a period of six months Support for all legacy processes Capability to customize services to enable differentiation in the market 11

14 Conclusion As the auto lending and leasing market grows in complexity and competitiveness, the auto financing companies would need comprehensive, unified solutions that can manage processes while delivering accurate, actionable information from a single source. These solutions must lower the average cost per loan and lease; create a consolidated analytical view of information; and embrace the most scalable, secure, and flexible technologies available. Oracle Financial Services Lending and Leasing meets all these requirements by addressing each of the financing processes from design through execution. It provides end- to-end capabilities from origination into servicing and through collections. It offers unparalleled functional coverage as well as the ability to leverage all enterprise data to help make the right product offers and finance decisions. 12

15 Lifecycle approach to auto lending November 2012 Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA U.S.A. Worldwide Inquiries: Phone: Fax: oracle.com Copyright 2012, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners. Intel and Intel Xeon are trademarks or registered trademarks of Intel Corporation. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. AMD, Opteron, the AMD logo, and the AMD Opteron logo are trademarks or registered trademarks of Advanced Micro Devices. UNIX is a registered trademark licensed through X/Open Company, Ltd. 1112