Andrew Ballard, principle consultant of Experian’s Automotive Business, has a lot on his plate. With the industry increasingly looking at affordability checks, and big data becoming increasingly important, Experian’s numerous services in the industry are becoming increasingly popular. Ballard speaks to Motor Finance on these topics and discusses some of Experian’s current projects
How are things going?
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In terms of decision support, a lot of what Experian does is use our data and clients’ data to help make better informed decisions, so it’s quite pleasing that the auto industry is quite buoyant and a lot of that buoyancy in new and used cars seems to be linked with funding, with some quite well-supported activities from captive lenders and the like.
What we’re tending to find, in terms of that decision process, is a lot of it is around the car. So personal mobility is very much still a thing people aspire to. Nobody gets out of bed looking for finance; they get out of bed looking to buy a used or new car. And finance is the mechanism many people rely upon.
One of the things we’re wrestling with at the moment, especially with the backdrop of FCA regulation, is how do we make people, businesses and consumers better informed throughout that decision process where a lot of that initial thinking is carried out online. There’s a lot of activity around point of sale finance, but we’re looking quite carefully about how our data can help inform people along that purchase journey in terms of some of the things they need to be considering.
In this regard, what are your interactions with consumers?
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By GlobalDataWe have a version of our provenance check, which we partner through Auto Trader called Vehicle Check. What we are finding is, certainly when we look at the car buying journey, a lot of people are starting to consider their purchase decisions initially online, where they have a brand in mind, a budget or a lifestyle requirement. What we’re curious about is when does the question of "how am I going to fund this vehicle" start to become front of mind? Is that happening as part of that online research, are they looking to work with existing financial partners, or is a lot of it happening when they arrive at the dealership through point of sale finance?
What is Experian’s view of the transparency in the market as it is?
It is quite a complex process in terms of a car purchase because in many instances, you have a trade-in vehicle or increasingly a personal contract plan that has either run its term or is looking to be changed. One of the things we feel is quite key to that is looking at the options around transparency and what they look like. Not only for the deal as it’s being made, but also for the duration of that agreement – be it 24 or 36 months. It’s an area that could be better in terms of making sure the dealer that is putting that deal together and the consumer that is reviewing it has those options laid before them, and is making an informed decision.
Some of the work we’re looking at in terms of affordability would be the ability of our lender clients to look at the point of application, but also the ability to monitor areas such as financial distress throughout the duration of the agreement. With secured lending there will always be the ultimate sanction of repossession, but from a consumer outcome point of view, it should be possible to take steps to avoid that being an inevitable outcome.
Certainly, with other financial commitments that may exist for the individual making the financial arrangement, not only should that be considered at origination but also throughout the life cycle of the agreement.
What information do you provide for affordability?
It’s an area that is in its early stages. We’re looking at credit account turnover information and, providing the client is a full member, we have the ability to share other financial commitments that the individual may be involved in at the time. A lot of those pieces of information are being considered at the point of information.
From a consumer’s point of view, we have the services of Credit Expert, which allows people to look at their credit score and view their financial commitments and see how that might be viewed by an organisation they are looking to have a financial relationship with.
We’re also looking quite carefully at what the industry calls pre-qualification checks, and trying to work out the best way they can be provided on that credit journey. So that might be delivered to a dealership, with consent, at an earlier stage on that shortlisting cycle than is perhaps happening at the moment, just to help discussion advice and transparency before somebody gets further down the road and realises the car they had set their heart on wasn’t as affordable as they first thought.
So you provide affordability to the dealer?
The process we’re looking at is around the sales process, and particularly the online research. So we’re looking at organisations from dealer management system providers through to organisations that provide specialist interfaces for F&I services, just to understand at what point that information is being used, and if that is upstream from a dealer’s website, trying to assess whether people are looking at a vehicle where they are in a position where they are likely to be accepted for finance. Or is it in showrooms, or possibly within the finance organisation systems themselves.
When do you think would be the best time to introduce this information?
Our preferred option would be if the consumer is considering whether or not the time is right to change the vehicle. We often see people coming at that from three different directions. They either have the desire to change the vehicle that is lifestyle led, for example looking for a car that would be able to transport them, their spouse, two kids and a dog. It could be brand-led – so they might have just seen the new whatever vehicle, and they’ve set their heart on that. The other is budget driven – where budget dictates selection.
Our view is that in order to help that thinking process, and avoid mismatch with expectations, the thought about affordability should happen earlier than it does at the moment. So perhaps it forms part of that online research where not only the car, the brand and the purchase price is part of that decision, but also the likelihood of acceptance, and on what terms might that finance offer be made.
So if you’re looking at a Ford Fiesta, on that first page, you have a picture of a car, the spec, the price, and you’d want something giving you that indication of acceptance and affordability?
That’s right. If you think what’s been quite prominent in the last few years on aggregator sites, where some of that decision-making has to filter down a wider list into more appropriate offers for a consumer. I guess we’re thinking along the lines of if things were to be transparent, fair and better understood by consumers then that thought process has to happen earlier because a lot of that research is happening online. We’re spending a bit of time online just trying to work through the most appropriate time that information can be shared.
That might be at the stage of research where they’re on the website of a dealer that happens to represent the brand they’re interested in, and the dealer is the franchisee for that geographical area. So that is why a lot of the routes to market are quite varied, so it certainly can be dealers, funders, organisation that perform that F&I services.
Going back to what you were talking about, what information is used in affordability discussions?
It’s important that at the point at which that financial commitment is being considered there’s an acknowledgement that the individuals taking on that commitment will have other financial commitments in their lives. Some of those things aren’t static and are subject to change.
A lot of the view of affordability is the level of disposable income. We’ve done some research and a motor purchase almost creates a bit of a demographic self-selection. You’re not looking at the UK average. Somebody that can purchase a vehicle, and purchase a new vehicle is by definition a bit more affluent than the norm.
But we do see even in those groupings there are potential areas of financial stress that could impact on people if other financial commitments such as mortgage interest rates were to change.
And we’ve done a bit of work with one of our segmentation tools called financial strategy segments, where you can look at groups of people who, by certain measures are quite affluent, but their disposable income is potentially fragile. So typically people that are young families that are both in employment, but perhaps their financial commitments due to the fact they’ve perhaps just moved to accommodate a larger family, are more open to financial stress than some older and more settled households.
Is this push for greater transparency and affordability checks solely down to the FCA?
It’s a general thing that is happening. It creates a sharper focus with the FCA commitments to looking out for customer outcomes. But I think it’s fair to say with things like the past challenges we’ve had, somebody’s willingness and ability to embark on credit just needs to be tempered with a measure of affordability and financial stress.
Do you think greater transparency is going to be the main impact of the FCA?
I think it’s going to be transparency and whether or not the financial products that’s being put forward is being explained and is appropriate for the person that’s had an offer to them and has taken it up.
I think some of that comes from the growth in areas such as PCP and areas such as the very well-publicised promotions and incentives. And I suppose it’s making sure those offers and incentives are put in context, and not seen by consumers as the only option.
So somebody that may look at a lead promotion that says "you can have this vehicle for £190 a month with no deposit", which is certainly attractive, but I think there is a duty of care from the lender and the dealership to make sure other options are explored, because for that consumer, that may not be the right way.
What is your summary of the market?
The market is buoyant. A lot of that is driven by quite attractive, well promoted financial products, which are certainly a good thing. What needs consideration is what we spoke about – I feel there needs to be a bit more information available, and consideration before somebody turns up at a dealership thinking the only option is that three-year PCP.
Where do you see big data going in motor finance?
Certainly we’re seeing a lot of work on what we’d call retro analysis. We have a suite of services that we’ve put in a product we call market portfolio insight. That does lean on the big data space.
What I mean by that is if you have a lender that has perhaps been looking at business activity of the past three or four years, they’ve got their own internal measurements. What we can do is start posing some ‘what if’ scenarios. So what if the automated decline or accept scenario two years ago was different? We can replay that, and show what that might mean in higher rates of accepts or delinquency etc.
What we can do is use the clients data, industry data and economics and so on that we hold, and the data and technology is such that we can crunch some pretty significant data sets and make sense of them far more quickly and in a for more efficient way then we could five or ten years ago.
And are you able to apply that to affordability?
That is early days. We can look at affordability measures that look at national and regional trends, and take what is quite granular data and then aggregate it up at person, household or geographical levels. And then we can look at the UK or a region and see if we believe financial stress sin one part of the country is going to differ from others. We can then look at it from the person level, based on the data we know about the people and their financial commitments, and then overlay that with demographics. Those kind of things are quite data hungry, but the way in which technology has changed has allowed us to do that. We can do something now from an analytical point of view which, five years ago, would have required a pretty significant business case to even think about.
