Auto finance industry as a whole has been undergoing major transformation effected by the technological advances. Although the Buy Here Pay Here (BHPH) segment has not kept pace with the broader industry, it has certainly undergone significant changes over the last decade.

Buy-Here-Pay-Here dealer is the last and best resort for vehicle buyers who have difficulty in getting credit from the traditional auto financing sources because of their spotty or poor credit history. BHPH dealers provide one-stop shopping to their customers in that the customers buy their vehicles and get the financing from the dealer, and subsequently the customers make their loan payments typically at the dealership. A majority of these BHPH dealers use their own funds to finance their customers’ vehicle purchases. While some BHPH dealers retain the accounts and service them, others turn around and sell their account portfolios to companies called acceptance companies. Acceptance companies such as United Acceptance, Inc., Regional Acceptance Corporation, and CAR Financial Services, Inc. buy retail installment contracts and service them. They play a critical role in making credit available to the BHPH customers.

While the BHPH dealers are well known for their attachment to the good old way of doing business using fax machines, many of them now use Dealer Management Systems (DMS) to streamline loan application processing, automate contract printing, process payments, repossess assets, and remarket the recovered vehicles. Cloud based DMS solutions such as Dealer Track, Dealer Mate, and Management System Plus from Constellation Automotive Software are enabling BHPH dealers with limited or no in-house IT expertise to streamline operations and improve performance.

Given the regulatory requirements, the dealers are used to dealing with copious amounts of paper such as the retail installment contract, credit application, and disclosures whose content and format are highly regulated by various state authorities. To address the issue several companies including Dealer Track and Open Dealer Exchange have built the platform and systems to enable electronic signing, storage and audit trail of retail installment contracts. Additionally, eighteen states including California, Georgia, and New York offer electronic lien and title (ELT). The ELT process allows DMVs to electronically notify lenders when creating their security interest in vehicles and for lenders to notify electronically about lien release when the loans are paid off.

Underwriting is another area that has benefited significantly from the technological advances. In addition to checking the credit history of the buyers the dealers can use data analytics and data mining to get a better assessment of the buyers’ risk profile and make their credit decisions accordingly.

Technology is transforming the BHPH industry in a big way and helping customers, dealers and acceptance companies. It is bringing efficiencies all the way from underwriting to servicing of retail installment contracts

When the dealers are ready to sell their accounts, they can package accounts based on seasoning, term, and buyer credit profiles, and share the portfolios via cloud based collaboration tools such as Google Drive, Microsoft One Drive, and DropBox. Acceptance companies are leveraging their historical account performance data to assess the risk of individual accounts and use their data-driven pricing models to model portfolio risk and price portfolios accordingly. J.R. Edmiston, Senior Vice President at United Acceptance, uses the company's proprietary risk and pricing models that take not only account specific attributes but also dealer specific attributes and macro economic factors to better assess loss frequency and severity.

The collections area has also been transformed by the availability of cloud based telephony and call center solutions. These solutions use data analytics to identify the best times to call account holders thereby increasing the chances of making contact. Speech analytics helps companies identify in real time the account holder conversations that are not progressing as expected and have more seasoned call center specialists or supervisors intervene and drive those calls to desired outcomes. United Acceptance has implemented Noble Systems’s call center solutions that have helped deliver productivity and efficiency gains. “We have realized productivity gains while simultaneously improving the consistency and quality of service we deliver to our account holders through effective utilization of speech analytics, data driven scorecards, and training tailored to the needs of individual customer service specialists,” said Mark Perkins, President, United Acceptance.

Compliance is another function where dealers and acceptance companies have seen significant benefit of new technological developments. Improvements in scanning and optical character recognition technologies have paved the way for automating document workflows and ensuring that all critical documents such as GPS disclosures and gap insurance disclosures are included in the contract documentation bundle. Document repositories such as SharePoint and Alfresco simplify the task of rolling out new versions of document templates and expiring old ones. Centralized roll out of documents such as state specific retail installment contracts, disclosures, and underwriting procedures helps with adherence to company policies, consistency, and compliance with various lending standards and regulations.

Looking forward there are several key technologies that can bring tremendous benefits to the industry. Artificial intelligence (AI) in combination with big data can help build superior risk models that incorporate thousands of granular data points as opposed to traditional models with a much smaller number of data variables. Similarly AI tools can learn from historical data and monitor users’ behavior patterns to identify anomalies and warning flags which can help reduce fraud and mitigate risk. Robotic process automation which involves using software robots to automate, manage, and execute large volumes of transactions can help bring huge efficiency gains to underwriting and servicing of accounts while ensuring transaction consistency, policy adherence, and reduced error rates.

Technology is transforming the BHPH industry in a big way and helping customers, dealers and acceptance companies. It is bringing efficiencies all the way from underwriting to servicing of retail installment contracts. It is enabling dealers to assess individual borrowers’ risk profile more accurately, deliver consistent and compliant service, and mitigate risk through intelligent monitoring of user activity patterns for warning signs and fraudulent activity. Acceptance companies are able to better assess portfolio risk, price deals using pricing models that take a large number of granular data attributes, and service the accounts effectively and efficiently. The BHPH customers benefit through speedy credit decisions and interest rates that are more in line with their individual risk profiles as opposed to higher interest rates dictated by the overall risk of the BHPH segment.