Jonathan Minter speaks to Richard Jones, newly-appointed head of Black Horse, about how his background has prepared him for the new role, and his plans for the business
Though Richard Jones may have only taken over from Chris Sutton as managing director at Black Horse a few months ago, his career in finance goes back several decades. He started out at Lloyds TSB 21 years ago, as a graduate in the bank’s accountancy trainee programme. While he passed his exams and became a chartered accountant, after five or six years he realised he didn’t want to be an accountant forever, and wanted to go into something more commercial.
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Speaking to Motor Finance about how his career developed, Jones says what followed was a series of differing roles, including product, marketing and profit and loss type jobs, across a number of different business and distribution channels. For much of the past decade, Jones has been working in the life insurance and pensions sector.
Describing areas he worked closely in, Jones said: "I’ve worked quite a lot with direct-to-consumers and done some work on digital-only propositions. But working with intermediaries is my heartland experience."
This experience with intermediaries has so far proved to be highly transferable into the motor finance industry, Jones says.
Regulation
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By GlobalDataThere are other skills he’s picked up during his career, which he says are helping him at the start of his motor finance career. A second one he lists is that the insurance and pensions industry are two of the most heavily regulated parts of the UK’s financial services sector. Coming to the motor finance industry at a time when people are just starting to get to grips with the Financial Conduct Authority (FCA), this experience will be potentially invaluable for him, something he notes: "I have a lot of experience from my old jobs, where I would deal with regulators on a very frequent basis. So I get where they are going, the type of mindsets they are trying to instil in the financial services business, and I’m finding that helpful."
Aside from dealing with regulation and working with intermediaries, Jones is able to call on experience in digital products. Over the past five years Lloyds’ life insurance product has really digitalised, and he says he intends to bring the experience to motor finance, at a time when the car buying process is moving increasingly into the digital space.
The appeal of moving over from insurance to motor finance was partly down to the fact that Jones is a self-confessed petrolhead, but also part of a general desire to move away from insurance and more towards something closer to banking.
The opportunity came up earlier in 2015, when Chris Sutton revealed he was planning to retire: "I’ve known Chris Sutton for a long time in the group, and when the opportunity came up it worked well for me, and it worked well for Black Horse. It looked like a good business. It’s is a core business for Lloyds, and it’s grown quite a lot. Also, it’s an exciting market, so I thought there isn’t much of a downside."
In his first months, one of the things which has surprised Jones is the level of experience in the industry, and in Black Horse in particular. As Black Horse is the product of an amalgamation of a number of motor finance businesses over many years, Jones says this has meant that those who have stayed in the business for a prolonged period of time have had to survive many consolidations of the business.
On top of this, he says: "I’ve never seen an industry retention rate that is so good."
A second surprise for Jones was how seriously the industry was taking the new consumer credit regime. At the time he was interviewed by Motor Finance, he says he’d spoken to about 20 dealer groups: "I’ve been impressed with how seriously they’ve taken the adoption. Also, how good their grasp is of their business, the depth of knowledge, and the grip and control they have on things like performance information. I’ve been struck by how professionally run motor dealer groups are."
The recent regulatory changes have had a huge effect on the industry, and this is something Jones has noted, saying it has changed quite a lot of the underlying processes Black Horse uses – for example on topics such as affordability. "Some of these things make it a bit harder, because it elongates the process a bit," he adds.
One way of combatting longer processing procedures is through increasing the use of digital, where it helps the dealer and consumer. This year has seen Black Horse make some big moves in the digital space, with the introduction of its e-sign tool, which enables consumers to buy a car on finance using a digital interface, instead of relying on paper throughout.
On the subject of digital Jones continues: "My take on Black Horse’s history is that we pioneered a lot of this stuff, but maybe over the past few years we’ve fallen back a bit. So it’s a big priority of mine. It was already a priority in the business to make sure we regain the ground, and be seen as a company which lives around technology that makes dealers lives easier. E-sign is one of those things, and it won’t be the last."
Efficiency
In general, Jones will be looking to introduce technologies he thinks will help dealers and customers make more efficient use of their time. One example he gives is "in things like the collection of data and information from customers, in a way that supports the dealer. If it works for the dealer’s process, we can try and up-front some of that so that, when the customer gets to the showroom, the dealer has all the information needed from the customer, and is not spending half an hour going through lots of forms and paperwork."
Another example he highlights is around the fact that consumers are increasingly researching their cars online. For new cars, this often also includes configuring the car online. A problem Jones identifies is that websites often struggle to give consumers a good idea of whether or not the car is affordable, and whether there’s even any point in the customer going to the dealer to speak on the topic.
Jones says: "So pulling some decent intelligent specific quotation engines around that, playing with things like soft credit searches which will tell them if they’re probably going to get accepted or not. We’re looking at plugging that into a dealer’s tech, so it feels part of their journey with that dealer, rather than a separate journey with us, or someone else.
With the general shift towards digital becoming increasingly pronounced, Jones suggests now could be a good time to infuse some new blood into the industry. He adds: "I met with the CEO of one dealer group the week before last. Three of his management team had come from a retail or digital background. There’s a motor dealer who’s gone out to bring new talent into his senior team, not from within the industry, because he sees he needs those skills in his business."
A number of dealer groups have also recruited new senior staff specifically to look after compliance, and to ensure that the company’s culture is in line with what the FCA is looking to do.
None of this is unique to financial services, but Jones says the motor finance industry has a little more catching up to do compared to some other markets.
Treating customers fairly
The regulation itself is based around the basic idea of always treating the customer fairly, and Black Horse has looked at ways of implementing this into its business.
One example of this is for remuneration. According to Jones: "We’ve got a very explicit commission linkage to an APR where a dealer could only move back from that, i.e. discount away. This removes any bias or ability for an individual salesperson to list the rate to a person and earn more money."
In other words, Black Horse dealers are given a set price and, while they are able to negotiate down, they are not allowed to charge any more than this amount.
Jones says: "In pre-FCA regulation, those kind of models existed, and they put inherent bias into remuneration, and were wrong. So we were one of the first to step away and to move to a cleaner model which removes any inherent bias. This was before my time, and I’m very pleased that Black Horse did this."
He adds that looking at other markets shows the FCA has been more than willing to fine companies heavily because they’ve got remuneration models with inherent bias in them.
Affordability has been another area the FCA has looked at over 2015. As the regulator tends to use principles rather than specific rules, how lenders check a customer can afford certain levels of debt has been a topic of conversation for much of the year.
Jones says he understands that there isn’t a totally ‘correct’ answer to the question of affordability, adding: "Do you have to ask customers affordability questions, or can you just use a credit score? You could ask five different people anonymously, and get at least two different answers."
The reason for the differing answers is that lenders need to provide evidence that the customer can afford that lending. Jones adds: "You’ve got to look at the current and future circumstances." According to Jones, Black Horse has decided to add some questions in order to ensure customers can afford to finance their car. He says: "If I take the spirit of what they’re saying, I’m going to ask two or three extra questions. I’m not going to ask just about their credit score, but also about other expenditure that doesn’t appear on their credit score. And I’m going to ask them about their future circumstances, because that’s what the spirit of the regulator is all about."
The challenge, he says, is ensuring that these questions are done in a proportionate manner. An example he gives is of a customer who has had motor finance for a number of years, who has never been in arrears. "You might take that into account as well, and might be more comfortable providing finance for a customer like that instead of a new customer you’ve never done business with. So it’s all about proportionality, but fundamentally there’s a principle, and you’ve got to figure out not just the letter of the rule, but the spirit."
Healthier industry
While this may prove to be a challenge for lenders, brokers and dealers, Jones says it will result in a healthier industry in the long run. He says: "Principles are saying if you’ve got the right basic judgement in your business, then you don’t need lots of rules. If I have to tell you everything about what you can and can’t do, then you haven’t really got the culture, have you? There’s something wrong."
This was a mistake Jones saw regulators make in other sectors in the early to mid-2000s, and the FCA has clearly taken these lessons on board.
Coping with the increased regulation without overly impacting on customers again comes back to smart uses of digital, he adds.
Jones has come into both the motor finance industry, and more specifically Black Horse, at a time of growth, and he is aware of this. He tells Motor Finance: "Black Horse is in a really good place in 2015. It’s outperforming against its own internal targets. It’s growing its market share. I’m coming into a business that’s doing well and growing. The future is all about continuing that growth trajectory and investing in the business to make sure we can do that. We’ll invest in new and better technology, allowing Black Horse to work better with dealers."
More specifically, he says he’s looking to upgrade Black Horse’s technology platforms in conjunction with dealer platforms.
While the market is generally embracing digital, however, he doesn’t see a time when the dealer is no longer part of the car buying process: "The impression I’m forming is that dealers will stay very pivotal in a customer’s car buying in the future," he says. "I’m coming in fresh, without any baggage in forming that view. They add so much to the process. You’ll always get a niche in any business, where customers are happy to do everything online, even if it’s a massive purchase. But I think most customers value that dealer interaction."
"I don’t think we’ll see a digital-only environment, but I do think digital will be much more important and touch more parts of the customer’s car buying and usage journey."
