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Ally Financial offers auto financing and vehicle protection products.
While everyone wants to be the first to discover the next big company, to be the one to discover the next Facebook or Twitter, oftentimes the major technological shifts are coming from the big companies, the players that have been on the scene for years, if not decades. Those companies have survived because they know how to pivot, and they are the ones getting ready for the next waves.
In this column we talk to those companies and their innovators who are preparing them for what's coming.
One of those companies is Ally Financial, which offers auto financing and vehicle protection products.
The company recently launched Clearlane, its online auto financing platform, in April to help connect consumers with leading auto finance providers to finance or refinance their vehicles online. The Clearlane site was brought to market following Ally's acquisition of BlueYield, a California-based technology company, in 2016.
Ally has also been offering SmartAuction, a digital solution for dealers looking to sell and buy vehicles. It’s essentially an online auction, which saves the hassle of travel and opens up selection to many more vehicles than a tradition auction. It’s helped dealers sell more than 5 million vehicles. The company also gives customers access to Ally Wallet Wise, an online financial education program, which helps consumers better understand financing so they can make better decisions.
I spoke to Tim Russi, President of Auto Finance at Ally Financial, about these initiatives, how technology is changing the auto business and how his company will deal with innovations such as autonomous vehicles and ride-sharing.
VatorNews: How is technology influencing and impacting Ally’s auto business? Why is this technology integral to the company’s future in this arena?
Tim Russi: We’re a company that’s 100 years old, and you don’t become a 100 year old company in today’s world if you don’t have the ability to reinvent yourself. I joined in 2008 and we’ve been constantly reinventing and adding to our business because the marketplace is changing constantly, and the speed of change is so rapid that you can’t get behind, otherwise you get crushed.
Ally operates in what we in the lending world refer to as an ‘indirect model,’ so dealers originate the loans and leases and then we purchase them from the dealers. The speed and access of the indirect model has changed significantly in the last 15 years. The industry was very disruptive in creating online portals for dealers to be able to submit applications to lenders, so the lender didn’t have to be on site to do the loans. In fact, we’re a 30 percent owner of one of those companies, RouteOne, and it allows us to see almost one million applications a month. I can’t imagine doing that cost effectively without this kind of technology. An application can be submitted and a response given in seconds.
That’s kind of the start of it, and then you look behind that and you’ve got to say, ‘How much technology is behind it to be able to take a credit application and analyze that credit application to determine the risk in lending money to the individual and the propensity for that individual to repay the loan?’ So we’ve invested quite heavily, and continue to invest, in our ability to determine that cost of credit. We operate in relatively thin margins, so being able to accurately call the cost of credit, which on loans that could go out as far as seven years, to be able to predict behavior of consumer and the consumer’s finances for that period of time, requires an awful lot of technology and an awful lot of data and an awful lot of science, but also an awful lot of business judgement that we integrate in to make the best decisions we can.
VN: How have you seen technology in the auto space evolve in that short amount of time? How quickly is the space changing?
TR: We’re trying to determine loyalty to brands and help our dealers bring customers back into the dealership when they’re interested in making a purchase. Trying to predict “in market” based on the Internet activity of any given consumer is something that’s relatively new and starting to take hold over the last two to three years. That allows dealers to focus on customers that are ready to buy and put their energy and marketing time and effort around those consumers.
You look at a lot of the lending models today and they’re going direct to consumers, and we’ve even got a direct model, because as you look at digital and the consumers doing shopping online, and wanting to buy, there’s no reason they shouldn’t be able to select and purchase the vehicle and obtain financing right at the ‘point of sale.’ If the sale’s going to be online, not in the dealership, we want to make sure we’re there and then fulfillment can occur at the dealership. That’s emerging right now. There’s going to be a lot of advancement in that area going forward.
When you look at when we service loans, when everything goes right we don’t have to do much work, but if customers forget to pay or are having financial difficulty in making their payments, then that’s basically where you’re spending your time - figuring out collection strategies and contact strategies to make sure you’re working with the customer on their unique circumstances and minimizing losses.
VN: How has SmartAuction changed the way dealers sell and buy vehicles? What kind of ROI have you seen?
TR: SmartAuction, we actually developed in 1999 and we’ve done over 5 million transactions. We have 20,000 vehicles that are available for sale or purchase in the marketplace. It’s a wholesale marketplace so dealers can post and buy.
We kind of created this category; historically it’s been physical auctions and we were the first in as a pure digital disrupter from an auto auction perspective. Again, we continue to invest in that platform, we continue to make it as easy for dealers to use. A couple of years ago we went mobile with it so dealers can buy inventory while they’re walking around the lot. They don’t have to be tied to the desk anymore. They can check their buy lists and sell lists, so there’s an awful lot built into that that we’re quite proud of. If you look at the transactions that get done on a daily basis, it really is amazing the amount of movement of vehicles that just happens very seamlessly around the country from this activity.
We’re actually re-platforming it right now, so we’ve got modern technology that we’re able to use from a next gen perspective. This is an area where technology changes pretty rapidly. I think the last time we re-platformed it was less than five years ago, so the investment in this is something we want to keep fresh and on the leading edge of marketplace technology, where you can have people pretty much anywhere, anytime looking at what you have for sale and then can execute on it fairly seamlessly with a few clicks.
VN: How does it work from a consumer perspective?
TR: Right now it’s a wholesale marketplace – only available to dealers. We would like to be able to allow consumers to transact on it, so a consumer would be able to sell a vehicle and dealers would be on the other side looking to purchase that vehicle. That’s probably the next gen. Obviously, interacting with the consumer requires different technology than you would with dealers who are on the site constantly. A consumer may only be on it once every few years.
VN: How would the technology be different on the consumer side?
TR: The whole concept from a consumer is: ‘Make it very easy for me to execute a transaction as seamlessly as possible, when or where I want. In essence, take any friction out of the process for me.’
A lot has to do with how the interfaces work and the portals. It’s mainly the art of engaging the consumer, how you make it intuitive. The actual programs and stuff, everybody can have access to that same technology, but it’s how you configure it, how you interface with the consumer and how you present that so that consumers are able to navigate quickly and to closure. We spend lot of time evaluating what goes on out there. Oftentimes, consumers get on and go, ‘I’m not doing this because I just can’t get across the goal line in the time frame I have.’
VN: In April, Ally launched Clearlane, its auto financing platform. Can you walk me through how that works? What are the benefits to your customers?
TR: Clearlane was an acquisition we did a little over a year ago and we’ve been spending the better part post-acquisition integrating it and upgrading it into our environment. What we were seeing, and you’re hearing an awful lot about it right now, is what people call “fintech” or technology companies looking to be in the financial services space. Their ability to scale at the level of a regulated institution through either a partnership or just as a provider becomes very difficult for small technology companies with good concepts. What we saw with Clearlane was a platform that we could use to scale and kind of reinvent it into our model. Historically, they’ve been a refinance business; we look to be able to use that for purchase as well, so a consumer wanting to buy a car online would be able to complete that transaction online. We view that as something we would do in conjunction with the dealer. There’s physical delivery that’s required and we think the dealers add a lot of value in that process.
Clearlane is a marketplace lender, so in fact we’re hosting other lenders, including ourselves, on the site, which I think is pretty innovative. Most people tend not to want to do that. You’re putting your competition in play. Typically lenders want to be direct with the customer and wouldn’t necessarily introduce their competitor into a situation where maybe they’re not going to win the transaction. The Clearlane model is truly a marketplace format, where the lenders that have the best solutions are going to win the consumers.
VN: Why are you willing to work with your competition when others wouldn’t be?
TR: I think it’s an important model. It’s very similar to what we did with SmartAuction, where we we listed a lot of the vehicles, but then supplemented the supply side by allowing others to list vehicles as well, including dealers. Given our lease book, we needed to distribute those vehicles in a marketplace and having buyers and sellers show up in a really efficient way. We’re a primary customer on it. Similar here, I don’t think the model for today’s consumer, or the future consumer, is going to be one where you give them a single solution if they’re online. I think that’s a flaw in some of the models that are out there today, where somebody else has picked the lender for you. You want choice, and by providing choice and selection the consumer is going to be more satisfied and the experience is going to be one that they cross the goal line on, versus one where they go, ‘Oh, I got one proposal from one lender. I wonder if I can shop somewhere else and get a better deal.’ It’s all in the spirit of being able to allow that consumer to transact as seamlessly, within that one experience, that one touchpoint.
VN: How does the launch of Wallet Wise fit into your overall strategy?
TR: We invest a lot in financial literacy and our Wallet Wise program is one that’s been out there a number of years. We think a well-informed consumer that understands the obligations that they’re taking on, and the decisions they can actually make, becomes a better consumer.
Consumers who know their own finances know what they can pay, know how they’re going to perform. A consumer that’s aware of their situation, knows the size of loan and maybe the amount of vehicle that they can afford, is always a better consumer. Understanding the process so that they feel good about the deal at the end of the day, no gotchas, no surprises. Oftentimes consumers have bad experience, not because of the folks that are interacting with them, but because they don’t understand the process so they feel a little bit like they don’t have leverage in the discussion. We want to make sure it’s a very balanced field where consumers are well aware of their rights and obligations.
VN: How do you see autonomous vehicles and ride sharing changing your business model? How do those prospects potentially affect your strategy going forward?
TR: First of all, I think complete autonomous, and the complete population of autonomous, is a number of years away. So the current model will exist in the near to medium term. Long term is often what people point to but I think there are a lot of developments that will impact that over time.
I do believe that we will have autonomous vehicles and that will be attractive to consumers, and so the idea of autonomous and ride sharing are two different events. You can have ride sharing as we do today without autonomous, so I like to talk about them separately. Ride sharing is a good opportunity for us, to the extent that somebody has to own that vehicle; maybe it’s a commercial entity and we are a large commercial lender as well. So maybe that consumer financing that’s being done converts partially to commercial financing, and we think that’s something we can compete in and be successful.
With autonomous, that’s technology without the driver, where the car is driving itself. Again, if a commercial entity will own those vehicles, or maybe a municipal entity, we’ve got those solutions and we’re following that. If consumers end up owning autonomous vehicles, that’s all fine, that’s the current model that we’ve got. What we’re trying to do in this space is make sure that we have solutions available and developing for whatever way the market wants to go. In fact, we launched a transportation equipment finance team that’s focusing on that type of segment, larger commercial lending opportunities, to make sure we develop that competency fully by the time the marketplace evolves.
VN: How does it differ lending to commercial entities versus consumers? Does the technology change?
TR: Obviously it’s a different set of regulations, a different set of loan agreements and different structures. More pools of assets versus individual assets. I wouldn’t call it technology as much as it is different processes that one would go through, a different form of the transaction. At the end of the day, lending is about advancing funds and getting repaid over time with some interest and that’s what’s going on.
VN: What do you see coming in terms of tech changing the auto space? Where do you believe it will be five or 10 years from now?
TR: In five years, I think you’re going to have some of this disruptive stuff reaching more critical mass. I think in five years the current business model will still be very much intact. Maybe the disruptive or new technologies that emerge may create incremental opportunities as you’ve got more people wanting to try the new technologies in addition to what they’ve got to do with their core purpose and functionality.
I think we’re in a very transformative period, from an auto industry perspective, and there’s an awful lot of investment occurring across the chain. It’s yet to be determined what that business model will look like, so our strategy is to keep options available for how the market tends to evolve and make sure we develop expertise, such that we’re very relevant to our clients as the transformation continues.
VN: Is there anything else you’d like to mention about the auto space or Ally’s strategy?
TR: My only other point of emphasis is we have a history of reinventing ourselves. Even though we’re a large company with a long history, our success and our history really come from having capable people, experts in industry that are able to navigate change and innovate.
(The Meet the Corporate Innovator series is brought to you by Advsr, a startup advisory firm in the business of starting conversations and sparking big ideas.)
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