Online consumer, student, mortgage, small business and real estate lending are all verticals that have been tackled by fintech firms over the last few years. Until recently we hadn’t seen much in one vertical: auto. Although it is the last category to be cracked, we’ve seen a lot of traction by several companies both in 2015 and 2016. This category represents a large opportunity not just for lenders, but also for technology service providers who power lending capabilities.
The largest fintech firm to make their way into auto lending recently is Lending Club. In October, 2016 they announced their auto refinance product. The product offering has now been expanded from loans offered just in California to a total of 27 states. We will have to wait and see how this product is received as it has only recently launched and Lending Club doesn’t break out auto originations. Lending Club claims that the average borrower can save 200 bps on their current auto loan.
Another company I find particularly interesting is Finova Financial. The interest rates charged by title loan companies can reach triple digits and the loan is backed by an asset. Not only is there room for innovation on pricing, but also on borrower experience as most title loan companies are brick and mortar retail establishments. Finova Financial provides an alternative with what they call a C-LOC or car equity line of credit. The company has raised $52.5 million and lets borrowers pay over 12 months, instead of over shorter terms offered by title loan companies. They aim to help borrowers build their credit as opposed to putting borrowers in a debt spiral which is often the result of traditional title loan companies.
On the technology side there are two companies who both have made some big announcements in the last couple of months. AutoFi, who won LendIt’s startup PitchIt @ LendIt competition in 2016 originally set out to be the Lending Club of auto loans, but has since shifted the business model. They are now a B2B software solution to simplify the auto lending process for dealers, lenders and consumers. AutoFi recently inked a deal with Ford Credit, which is a testament to what the young company has built. Ford Credit also made an equity investment in the company. The partnership allows customers to purchase and finance a new vehicle on the dealer website.
AutoGravity was founded in late 2015. The company offers a consumer facing comparison app for buying and financing vehicles. It is available in 46 states and users receive offers from up to four financing companies. While the company is still young, they have had over 150,000 app downloads and recently received a reported double-digit million euro investment from Daimler Financial Services. One of the newest companies offering auto loans through AutoGravity is Westlake Financial Services.
Innovation isn’t happening just with buying cars, but also selling vehicles. Blinker offers an app which empowers car owners to sell their vehicle to other private parties. Individuals looking to purchase can also browse used vehicles for sale and receive financing options through Blinker. They also offer an auto loan refinance product. Peter Renton, Founder of Lend Academy sold his wife’s vehicle a few months ago using Blinker and thought it was a very seamless experience. It provides a way for private sellers to offer financing thereby greatly expanding the potential pool of buyers. Blinker does all the underwriting and if the buyer is approved they pay the seller in full without taking any fees.
Conclusion
The auto space is currently dominated by traditional players and there are many opportunities to improve processes both in car buying and selling. The companies listed above have taken a unique approach and the auto industry is taking note of the innovation happening. As car buying continues to shift to an online process, these companies stand to benefit. While we are still early there has undoubtedly been a lot of movement over the last year. The LendIt team has taken note and this year we have dedicated a panel to the future of buying and selling vehicles. The above companies will either be speaking or attending LendIt USA on March 6th and 7th.
