Technology Partners – Blissfully Ignorant or Painlessly Aware

One of my favorite books is The Book of Questions by Gregory Stock. It’s a tool for improving relationships. It poses hundreds of questions on random subjects and gets people to explore and explain how they feel about things they may never have thought of. In my experience, there is one question that people always seem to choose. It is something like “if your significant other was out of town and had a fling that meant nothing to them and you would never ever find out about it and it wouldn’t impact your future, would you want to know?”

Technology PartnerThe responses are always varied and they always get a reaction—from “heck no, you did it, you deal with it” to “100% yes, a relationship is built on total trust and complete honesty.”

Would you care? Or have an opinion on which type of person you would want to be in a relationship with?

I believe that picking a technology partner is a little like picking a personal relationship partner. Choosing someone you are on the same page with might be critical to you – whether you prefer Beyoncé or Bach, first-class or coach, vegan or paleo. Or, it might not be an issue at all. Preferences are neither wrong nor right. What’s important is that you understand your partner’s preference. It’s the same with transparency and which a person prefers.

Here’s the top 10 from My Technology Book of Questions that I think you might want to explore when considering company transparency and your vendors.

1. If your vendor offered you a SOURCE CODE ESCROW would it matter to you?

The source code escrow requires the vendor to regularly deposit their code with a third party, so if certain trigger events happen you have the option to take the code and keep your business going. It may give you peace of mind that they aren’t going to walk out on you tomorrow and that you won’t be forced to jump before you are ready. But if you know you will never really take the code and use it, if you feel the company was unlikely to trigger an event that would cause this, or if you would rather just move on to another partner if they did, then you might not care.

2. Is it important that your vendors, even privately held companies, release their FINANCIALS to you?

If FINANCIALS are a requirement of vendor management, this may be critical for you. If you are unsure about the management of the company, you may care. Without the pressure of vendor management and if you are comfortable with the company’s history, and more importantly its future, this may not be an issue.

3. How important is it that your partner makes their OWNERSHIP STRUCTURE clear – if it’s the founders in charge, or private equities or venture capitalists that have majority ownership?

The company’s structure could give you insight into any positive alignment, or conversely, the likelihood of any future potential conflicts of interest. (Or the possibility that the people you trust will be booted out.) However, you may firmly believe no one can predict the future and knowing the ownership structure won’t give you that ability either.

4. Every vendor’s system has uptimes and downs, and challenges with internet providers or integration partners that could impact the system’s health. What if your vendor doesn’t clearly share the HEALTH OF ITS SYSTEM to keep you updated and you are always wondering – does that matter?

If you like looking at data and information, and being in constant communication, then seeing a vendor’s Status Page might be critical to you. But you may already have too much to focus on. Or you may be comfortable with calling the support line if there’s a problem or relying on your vendor’s technical team to call you if something should happen. In these situations, this type of information might be too much for you to deal with.

5. PRICING can be a sensitive topic. Which do you prefer: a vendor that gives transparency about their pricing, with everyone receiving similar deals? Or a vendor that negotiates to the point that the next company that comes along might be paying substantially more or less than you?

For some, the negotiation is all important and the deal other companies receive isn’t relevant. For others, knowing there’s a basic pricing structure and that other clients are paying similar prices gives them the assurance that the price is fair in the marketplace and they can set a budget and achieve their goals.

6. Every company has a ROADMAP. Some are more fluid than others. Is your vendor partner’s roadmap documented and shared with you? Do you care how they create their roadmap and do their planning?

Insight into planning and roadmaps may show how a company’s leadership thinks and prioritizes. But, if the system “as is” meets your needs and you don’t see those changing, then what the roadmap looks like and how is was created might not be that important.

7. Do you have great IDEAS and want your vendor to listen to them? Do you care about what other clients are thinking? Or if your vendor and their clients might agree with you?

For some, the transparent sharing of ideas and receiving feedback on them can give valuable insight into what others are doing and finding important. But you may get the answers you need in another fashion and not be concerned that anyone else sees or agrees with you.

8. Does the vendor have a COMMUNITY you can take part in for full transparency of questions related to system functionality?

If constant improvement is important. If having a place to ask questions and get details matters and you’re involved in making your business better each day, then a community might be key for you. However, not everyone wants or relies on community. If you’re not going to get involved, search for articles, look for ways to improve and actively engage, maybe this isn’t a critical item for you.

9. Does your vendor reveal RELATIONSHIP CHALLENGES? When something goes wrong, do they hide it or try to avoid telling about it?

For some, the past is the past and what’s important is how the company is going to deal with challenges in the future. For others, the past is an indication of the future, and they want to be completely aware and fully informed of both the good and bad that has taken place.

10. Do you want to hear your vendor talk about their STRENGTHS? Even when maybe it seems they go on and on and on about what they’ve been up to and what is going really well.

For some, a vendor’s happy stories are an indication of their confidence in their ability to deliver a product that contributes to their success and yours! But maybe you’re not one to dwell on your vendor’s other successes and would rather judge their strengths solely on their contribution to yours.

Stephanie Alsbrooks is the CEO, founder, and c-through specialist at defi SOLUTIONS, the most configurable loan origination platform on the market. E-mail Stephanie at salsbrooks@defisolutions.com.

Choosing a Lender

by Scott Brackin

creditmailIn the presence of fierce competition and razor thin margins, it’s more important than ever for dealers to look for lenders who are engaged in innovative ways to protect risk, while providing the best in class service levels for the dealership and the consumer.

Dealers understand non-prime consumers are on extremely tight budgets. Would-be customers walking into the showroom already know exactly what monthly payment they can afford.  To accommodate these potential buyers, dealers rely on lenders to help provide the right interest rate and term. Historically, lenders have relied primarily on the Big 3 bureaus, however those bureaus have limited information on non-prime consumers. Most dealers know that millions cannot be scored. Per the CFPB, 45 million U.S. adults are living without credit scores due to no credit history, limited data or out of date credit data with the Big 3 bureaus. There are also nearly 90 million adults with scores below 650 and that number is just going up.

Top lenders are innovating and learning alternative data is shedding more light on these thin-file, ghost consumers to help them better assess the risk and offer more flexibility in pricing. To be competitive, dealers must work with those lenders that employ all available information —specifically alternative data—to provide a more complete picture. By utilizing lenders that have access to alternative data on those consumers, dealers will sell more cars, minimize buybacks and help to build better customer relationships.

passtimeWhat is alternative data?
Just as the label implies, alternative data falls outside the scope of the Big 3 credit bureaus and includes public and private records procured from governmental and institutional sources and is accessible via third-party aggregators. Alternative data sources could include records from public files, utility and telecommunications companies and others.

From public records, one may access an immense amount of data regarding a consumer’s property ownership, bankruptcies, liens or judgments and relationships. Public records provide asset and adverse action information that may be modeled. Another source of alternative data is tradeline information that offer access to application inquiries, loan performance and consumer stability details. Alternative tradelines provide past loan payment behavior and an understanding of outstanding debt. At the end of the day, what you are looking for is a lender that has a complete the picture of someone’s ability to afford the automobile.

Move more metal
Lenders that leverage alternative data have deeper information on consumers’ buying behavior. These lenders will provide a pricing advantage over those who are not accessing alternative data.

For example, a lender who uses short-term tradeline data will have information on whether or not the consumer has taken out or paid off any short-term loans. Paying off short-term loans correlates with reduced risk. Specifically, borrowers with three or more paid off short-term loans in the prior year have a 33% lower than average auto loan bad rate – an improvement three times as large!

This information of a lower default rate translates directly into pricing power and the ability for dealers to close more sales.

automotive-personel-200x300Better buying experience
Lenders using alternative data have information enabling them to quickly verify information online, reducing some of the manual verification process. Such services include identity verification and information on the consumers’ stability that correlates directly with risk. Often lenders will access alternative data to verify income, employment and ACH events. When successfully implemented, these services make the funding process more cost-effective for the dealer.  As a result, the experience is also faster and more efficient for the buyer.

Win-win
Alternative data providers have built a business around collecting unique quality data from a variety of less traditional sources.  The buzz is this data is quickly becoming more mainstream with auto lenders. When choosing a lender, find out if they are using alternative data, what types of data and how they are using the data to help them more accurately assess risk and price the loan.

Lenders leverage alternative data to take a “closer look” at prospects and build a win-win for the dealer and the consumer. Not only will it allow dealers to be more competitive, resulting in more sales, but it will also allow the consumer to be able to afford the vehicle their credit really deserves. By meeting their needs quickly the first time, this will undoubtedly bring about repeat business.  A true win-win-win for the dealer, the consumer and the lender.

Scott-BrackinScott Brackin is the automotive practice segment leader for FactorTrust. Scott has more than 24 factortrust-200x300years of experience in financial services, credit risk data, and technology. Since joining FactorTrust in 2013, he’s overseen the company’s rapid growth in the automotive segment as part of his vision to become the premier alternative credit reporting agency (CRA) and analytics business for the automotive finance industry.