MotoNovo has come up with a new product whereby once a dealer introduces car finance into a car sale the customer deals directly with MotoNovo through an online interface. As well as altering the customer journey, the method fundamentally changes how dealers are paid. Motor Finance caught up with MotoNovo’s head of sales and marketing Karl Werner to discuss how the product complies with FCA regulations, makes life easier for dealers, and improves the customer journey.
I understand that the new dealer tools are there to remove the regulatory burden from your dealer partners
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That’s the part of it which gets the most questions. It’s a significant part of the product, but not its entire reason for being.
We started taking a very close look at the Financial Conduct Authority (FCA) 18 months or so ago. We saw it was fundamentally all about trying to make everything better for the customer, and it was a real opportunity. We realised that it may be a burden for smaller dealers, so we also started thinking about ways we could support dealers with that.
This brought us to thinking about introductory appointed representatives (IARs), whereby an institution in a regulated industry appoints a supplier as its appointed representative, so it’s on that licence rather than the individual businesses.
We thought that maybe there was a way where, as a lender, we could manage and support the dealers who may not want to be fully regulated by the FCA, and that they could come under our umbrella.
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By GlobalDataIt’s evolved over the 18 months it’s taken to bring to market, as we’ve looked at the customer journey. It’s an overused phrase, but we really started to pick apart why finance penetration in used car independent businesses has been fairly static, what that customer journey is like and how it should be improved. This helped us evolve the product to be now known as MotoNovo Self-Service, which fundamentally is a product whereby the point of sale materials and technology are placed within the dealer showroom, and the customer can focus on the car he wants to buy, and the dealer can focus on the best way he can present and sell that car.
Then the customer liaises directly with us through a funky piece of technology to quote themselves and apply directly, all the while keeping the dealer within the loop. It also offers a new payment or profit model, so dealers are still being rewarded for placing our materials and helping refer customers to our business.
If you think of the traditional journey for someone to take dealer finance compared to the ease of taking out a personal loan, it’s quite different. When it comes to the finance option, I have to wait for quotes from the sales person, and he supplies them to me. I don’t have much view as to how those quotes are arrived at. I have to apply publicly through another individual; that person tells me the decision, so that might be embarrassing if I’m rejected, and then I have to liaise with that person again to sign up and complete the process.
Dealers work very hard to make that work, and do lots of good things, but it’s a fairly laborious process. In some ways the customer experience is quite a long one and quite different from sitting at home with your laptop or tablet and applying for a personal loan in three minutes – you’re the first person who knows the answer, and you’re in control.
Our self-service proposition gives dealers the chance to offer that experience to customers. So our technology allows the customer to help themselves, run the quotes and do the application, and so on. The dealer is informed and knows if the customer is rejected or accepted, but the customer knows at the same time.
A lot of the dealers are fully authorised, and take that option because they think it’s easier and it works better for the customer. Some dealers don’t become authorised and come under our umbrella as an IAR. So we have a mix of smaller dealers that are happy to come under our umbrella, and we have other dealers that love the way the experience and technologies works for the customer, but for various reasons maintain their authorisation.
So the two key broad point points were the ability to not be FCA-authorised, which was the original idea, and then, as that developed, you realised this could improve the customer experience/journey.
It’s just that basic thing about motor finance – it’s a great industry to be in, full of people doing great things and being very consumer-focussed on great outcomes. But if you think about it, the way the customer can access dealer finance is a little bit more difficult and has a few more obstacles in it than the personal loan market.
What’s the difference between appointed representatives (AR) and IARs?
Being an AR means someone is going to oversee your compliance for you. They’ll ensure you do things correctly for the sale of a particular product and they’ll often supply compliant systems to ensure you do that.
So, with AR you’re pretty much the same as being regulated – you can offer choice or product, you can do selling and so on. A dealer can be very involved in the process.
An IAR is just what it says – all you can do is introduce.
So if you’re a customer in a dealership, you probably wouldn’t notice much difference between an AR and a fully authorised dealer. They’d be running the quotes, imputing the information, and taking your proposal, talking to the lender and so on. All an IAR could say is ‘Here’s the web file; here’s the phone number of the lender we use.’ And that’s it, they can’t say any more.
When we started, we saw this was going to be the whole game of this product, but as it evolved and we started to put the technology in place, we realised it was actually better, even for authorised dealerships.
So, of the people who have taken this product, about 70% of them have kept their licence, and have just taken the point of sale material and the technology. The other 30% or so decided to go full IAR, so they are not registered with the FCA, and they come under our umbrella.
So does this require you to have oversight?
The system was designed with a compliance process behind it, so we can make sure that all they’re doing is introducing. It has a whole host of compliance processes behind it to make sure we’re supporting the dealerships to do it the right way.
You mentioned a new method of payment. Was the FCA’s actions regarding remuneration something you considered in designing this product?
Our focus from start to finish was not about dodging regulation. At our absolute heart we took the belief that the FCA is trying to do very good things: it just wants the consumer to be better informed, have more choice and be treated with consistency.
We thought if a dealer is just utilising his premises to introduce people to finance, then paying on a per case basis isn’t the smartest way forward. Instead we pay the self-serve dealers a quarterly advertising and promotion payment, whereby they choose the fixed rate that every single one of our customers is going to get, and then we pay them per quarter. It’s a retail space model, not a commission model.
It’s only been running a few days so we’re keeping an eye on it, but so far we’ve seen that it takes the hassle out for the dealers. You just enter into a partnership with us and you’ll get paid a fixed sum every three months.
I was speaking to another magazine a few weeks ago, and they said ‘that’s a good way to avoid all that regulation’, but I have two issues with that: one – it’s not about dodging anything and two – there’s nothing bad about the regulation.
Some people might find it onerous, but there’s nothing worth ‘dodging’. All our dealers have to abide by the principles of the regulator.
So you’re looking to comply with the FCA through some fairly significant changes to how you conduct business?
Yes. 80% of people walking into a showroom are going to borrow money from somewhere.
Forgetting the big numbers within new car sales, motor finance in the independent used sector has something like 20% penetration. So 80% of the people need a product, but only 20% of the people take it.
That tells me there’s a weird dynamic – if people need something but won’t buy it. We’re of the belief it’s because of the way motor finance is presented in a traditional way – very manual, non-digital – just doesn’t work for the modern customer.
We all know the stats, 94% of car buyers spend between one and three months researching online, and so on and so forth. By the time they walk through a showroom, they’re often all sorted with their finance, and they don’t fancy sitting down for two hours talking to someone about their financial circumstances. They’d rather do that in private. Which is why personal loans are booming, and regular motor finance not so much.
Are you still going to offer motor finance in the traditional manner?
Yes, this is just a new option for our dealers. We’re not forcing anyone to become an IAR or take the self-serve technology. We don’t force anybody to take the new advertising payment rather than commission.
One thing most dealers, especially the independents, understand is that the current model needs to change and evolve somewhat. For every 10 cars sold, eight people have said ‘I’m okay, I’ve got the money already’. Dealers see that every day, and get the fact that new things need to be attempted and tried.
We’re getting a lot of positive reactions for trying some new technology in order to try and get those finance penetration levels growing again. Lenders that think it’s all down to very busy business managers and sales people doing lots of things just to try and offer a finance deal in what is a highly regulated environment, that’s only going one way. It’s all about ‘what’s it like going into a showroom to organise finance, compared to a quick click on the internet?’
You said the motor finance market wasn’t booming. I was under the impression it’s doing pretty well.
It is doing well. It’s better in used car financing than it was 10 to 15 years ago, when it was at the very bottom. In new, you need to keep an eye on the subsidised model – if you’re selling 0% finance, it’s not hard to take it and sell it. So a lot of the growth is manufacturer marketing money making the changes happen, not the fact something has fundamentally changed.
The statistics on used car growth, FLA-wise, tend to hover in the high single digits. It’s still growing, but we have to keep our eyes to the future.
If you take it down from the major groups and the largest dealers, a hell of a lot more used cars get sold than new, and, depending where you are, one in four or five take finance. And this hasn’t really changed since the recession. It is growing, and the independent finance companies are doing well. You have to have an eye on the core experience which, if you really put your consumer-centric hat on, and you can’t find dealer finance anywhere but in the showroom, which can take a long time and be a bit boring, what do you think is going to happen in that model?
I’m not doom and gloom, but there’s not a lot of point everyone in motor finance saying how great it is to have around 75% motor finance penetration. It’s not 75% – that’s a false figure. It’s far below that. The 75% is down to manufacturer marketing budget, it’s not anything motor finance companies are doing.
Anything else?
What I would say is that it’s a great industry. People are doing well and the lenders are doing good things. They understand things are changing because of regulation and because of digital. A lot of my colleagues and peers in other companies get that. Lots of people are going to be coming out with interesting things to make sure the regulation is embraced and the industry remains healthy in the future.
At MotoNovo it’s not just this new model; we’ve got new products coming out; we’ll be entering new jurisdictions in the coming months. So the investment we’re going through is significant. We’re working on four or five massive products at the moment which we’re looking to release from Christmas onwards, that’ll involve us working in different asset classes and jurisdictions.
Last year we saw 48% growth, to get us to be the third-largest lender, and the year before there was 67% growth. You have to keep coming out with a lot of new stuff to stay that big. We’ll have plenty to send you.
