“Digitisation and regulation were already directing change in dealer finance; COVID-19 has moved the dial from ‘high priority’ change to ‘crucial’, and ‘critical’ is probably just around the corner. Dealers need a fresh 21st-century finance approach.” This is the reasoning behind MotoNovo Finance’s Deputy CEO, Karl Werner’s call for dealers to commit to a fundamental change in their finance model that MotoNovo is supporting with a new financing approach – MotoRate.
Even ahead of COVID-19, personal finance trends made uncomfortable reading for traditional face-to-face financing:
- 79% of people made contactless payments at some point throughout last year
- 7.4 million people are currently living “almost cashless” according to financial institution UK Finance
- 72% now using online banking and 50% using mobile banking
Source UK Finance
The pandemic crisis is widely expected to accelerate the move to self-served online personal finance with its transparency and accessibility benefits. If dealers don’t adapt to the trends, there are plenty of easily accessed financing alternatives their car buyers can choose, including those from dealers who have embraced a forward-looking ethos.
Without positive change, which may be uncomfortable and challenging for some, dealers risk being left behind. Discomfort in changing was identified by some of the 100 dealers who piloted MotoRate, but with help and support the vast majority made the transition successfully and were beneficiaries of an overall 40% increase in finance penetration and there were other benefits.
The beauty of MotoRate is that it allows dealers to offer an impressive headline rate and an opportunity to inform customers that the final pricing is based upon their circumstances with no dealer discretion.
A first to market innovation, the risk-based MotoRate model was developed mindful of the FCA consultation paper on motor finance, which noted that; “the industry should keep the ability to price for risk and/or offer promotional discounts to consumers when appropriate.” This pricing ethos is central to MotoRate. Not only does it embrace regulatory principles, but it also meets the accelerating trends in customers’ personal finance engagement trends. Werner concludes.
“FCA changes are still coming and the regulator has provided a clear steer that financing models that give motor finance brokers/dealers an incentive to raise customers’ interest rates will be banned. Dealers can move to a flat-rate structure, but doing so could rob them of a significant low headline APR rate opportunity to compete with personal loan providers. All of our evidence demonstrates that with MotoRate, dealers can have a low headline rate and a better income platform for the metal and other services courtesy of the new level of online customer control and transparency. At a time of reinvention, MotoRate can be a vital addition for positive change.”