The coronavirus pandemic has continued to pose challenges to operators in the global auto and equipment finance industries. As U.S. GDP is predicted to drop by 4.6 percent in 2020, and European GDP is predicted to drop 4.5 percent - while prices are dropping by around 4.4 percent in countries such as Sweden - other countries are experiencing differing levels of recovery and future sales forecasts.
Industry leaders have been varied in their opinions on how we’ll recover from the challenges posed by COVID-19, but tend to agree the future is likely to look quite different. Higher cost sensitivity, avoiding long-term obligations and full price transparency are likely to be important factors for customers considering leasing assets. Long-term remote working for auto and equipment finance lessors, restricted access to showrooms and a higher demand from customers for online purchasing are also significant factors to consider. And while nobody is claiming it will be easy, there are at least overtones of bullish optimism. At Alfa, we continue to help our clients understand, adjust and compete.
Igor Szabados, Head of Business Development, EMEA and Simon Clark, Head of Business Development, Americas, discuss the impact of the COVID-19 pandemic on the auto and equipment finance industry, and how Alfa Systems has enabled its clients to meet the associated challenges head on.
The Move to Remote Working
Auto and equipment finance providers all over the world have been impacted by the move to remote working, or being unable to work outside of their offices. Many auto finance providers are finding that the pandemic has drastically impacted their offshore call centers. In countries where personal laptop ownership and home internet are not ubiquitous, this has resulted in understaffed call centers that are not suited to remote working, and thus a significantly reduced capacity to handle call volumes from end customers looking to organize their payments or borrow more. One European player was not primed for remote working so staff members were obliged to return to office working during the pandemic.
For the past three months, Alfa clients have been able to anticipate these issues by increasing digital functionality. Better online Q&A, with chatbot integration and expanded self-serve capability for high-volume transactions, has solved many of the potential problems that customers might encounter while there is reduced call center capacity. End customers are able to log in and change their details directly, as well as make alterations to their payment schedules or organize deferrals. This is backed by Alfa omnichannel workflows which ensure adherence to regulations and internal business policies - just like interacting with a call center agent.
Payment Deferrals
The pandemic has posed many challenges to equipment and auto finance providers, as customer needs have drastically changed. For example, flexible payment schedules and deferrals have become necessary for millions of customers around the world. For clients yet to implement Alfa Systems, processing a high number of payment deferrals took weeks to organize. Progressing through the process involved multiple manual steps and batch processes, and this exercise removed key staff from other aspects of the business such as answering phones and improving the self-serve offerings.
Alfa Systems has enabled our clients to respond to customer requirements easily, quickly and at scale, with out-of-the-box functionality that can update thousands of deals in a matter of seconds, performing the calculations and showing the changes instantly. Clients can choose to lengthen contracts, increase payments or adjust cash flow any way they please. One major U.S.-based client was able to plan for and execute over half a million deferrals within a matter of days, using Alfa Systems. This was enabled by Alfa’s no-touch processes, driven by a rules engine to ensure compliance. Some systems on the market are far from capable of making this type of change, either quickly or with so many contracts - while others don’t allow their clients to change a contract at all.
Customer Needs and Behavior During the Global Pandemic
Some clients, particularly in the auto sector, have been seeing major drop-off of new custom. In some cases, they are needing to approach funders to securitize their portfolios. Through Alfa Systems’ advanced BI and reporting capabilities, getting a detailed view of the risk in a portfolio is a simple operation, where competing systems often provide only a black box. Further to this, the Alfa Systems platform features company transfer functionality that allows such a securitization to be achieved. Another key client is currently launching a special-purpose vehicle that will be used to securitize pools of contracts in just this way.
There are simple new requirements that hopefully every software provider has addressed; the government-provided support of CBILS and CLBILS in the UK, for example, which allows our clients to lend to their end customers and have the government pay the first 12 months of interest and any lender-levied fees. But the pandemic has also precipitated an increased amount of reporting and disclosures; many of our clients have had to track delinquency in new ways, and this has had an impact on income suspension. In general, the numbers are simply no longer comparable with those of previous periods, so Alfa Systems' user-driven, self-service access to key business metrics provides crucial guidance on real-time business decisions.
The FASB’s COVID-19 relief measures in the US and the UK FCA’s requirement for lenders to offer payment holidays during the COVID-19 crisis require systems support to be implemented quickly and properly. For Alfa customers, this means amending workflow to adapt to the concessions; reworking business rules to determine if a reschedule matches the criteria (such as total payments); making contract changes at scale to apply rate or credit concessions; and simple reporting to identify portfolio impacts. Automated, one-touch, rules-driven processes enable these changes to be made at scale without the need for manual processing. For non-Alfa customers, these things are a lot less trivial.
In many European countries, there is support to implement car scrappage schemes to help get the economy back up to speed. Under these schemes, drivers are incentivized to take their petrol or diesel vehicle off the road in favor of an electric alternative. Alfa Systems covers this in its termination configuration, where the disposal status of multiple vehicles can be set to scrapped by default, in an instant; whereupon workflow can be used to progress the activity. Meanwhile, value-added products can be used as a capitalized cost reduction for customers who enroll in the scrappage scheme.
As the world and its local economies continue to change, our clients need new ways to understand the market and react to it. Alfa Systems gives them everything they need to find new ways to assess a potential customer’s creditworthiness; tweaking or adding new criteria through business rules is easy and painless. This need for flexibility is also reflected by Alfa’s cloud hosting facility, under which customers can work remotely, with flexible integration, high availability and comprehensive system monitoring. As customers may look for usage-based models for leasing cars or equipment in the future, shorter finance periods and asset-centric models will need to be offered by lessors. Alfa’s ‘pay per use’ model, deployed recently for a key US client, enables this flexibility.
Conclusion
The way people are buying software is changing. A year ago, requirements reflecting mass hardship strategies in a system selection process were an exception. Now this is the new normal; prospective clients are now expecting mass hardship scenarios to be demonstrated as part of the selection process. Examples include bulk changes, intelligent process automation for the portfolio segment impacted by the hardship, omnichannel servicing and chatbot integration.
Finance providers who are stuck with legacy systems and other outdated tech are facing just as difficult a time as their own customers. Today’s struggles are different from anything we’ve faced before, and a key responsibility rests on all players: to adapt to the changing environment. Alfa’s clients feel that they have the support and abilities they need to do just that.