Robert Meters is Director of Global Business at SCHUMANN. He studied Business Administration and International Management at the University for Economics and Management in Düsseldorf and Essen. He has been in the credit risk management industry since 1993 and has worked for leading information service providers as well as in the telecommunications industry. He advises and takes care of customers in the automation of credit risk management for the financial services sector with excellent references in leasing, factoring, banking and trade credit insurance.
Customers expect digital purchase
More and more customers are requesting car instalment products via online platforms and expect a 100% digital purchase process. The leading provider MeinAuto Group, known among other things for its MeinAuto.de brand, offers these customers exactly that: interested parties can obtain information, place an enquiry, enter data required for the credit decision and receive an immediate decision on the conclusion of the purchase - all online.
When making credit decisions in relation to instalment products for cars, two factors are decisive for generating growth: speed and efficiency. Smart technologies enable fast credit decisions and therefore facilitate an optimal customer journey. Automation also increases efficiency and enables short-term growth without the need to develop additional resources in terms of personnel.
During the SCHUMANN Digital Credit Management Conference 2021, which took place on 30th September, Tobias Greller, Senior Process Manager at MeinAuto Group, provided insights into the automation of processes with the help of SCHUMANN's credit decisioning software and described the factors for success.
Megatrends influence the credit check process
According to Tobias Greller, the MeinAuto Group has identified three megatrends that will change the buying behaviour of car purchasers and therefore the demands on suppliers.
- The market is moving from offline to online. Currently more than 90% of all car purchases take place at car showrooms but in recent years there has been a trend towards buying on the internet. The "Amazon principle" underlines this assumption: in many industries customers have transferred their experiences from different online markets to the purchase of other products – this will increasingly include cars.
- Ownership will become less important. Previously, "ownership" was important for car buyers. In future the focus will be on the use of the car ("usership"), which means that demand for alternative business models such as car subscriptions will increase.
- Cars will be de-emotionalized. Because products have become more comparable in terms of the quality, customer loyalty will decrease.
Online vehicle purchasers expect a completely digitalized ordering process including immediate agreement on the credit application or instalment contract. This means there are very specific requirements on creditworthiness evaluation.
Ordering a car from your sofa in the evening
Companies that wish to fulfil this customer desire must enable completion of purchases outside regular business hours. The precondition for this is 24/7 availability of the IT system as well as 100% digital processes. Business information agencies must be able to ensure immediate digital reaction times.
There are further necessary factors for success in relation to the IT infrastructure and tools that are used, emphasized Tobias Greller. The implemented decision making software needs to be scalable: it must be possible to perform each of 1000 credit checks at the same speed as a single credit check.
In relation to the creditworthiness evaluation itself, Greller listed the following key criteria:
- Timing of the creditworthiness check: should it be performed at the beginning or the end of the initiation of a new business relationship? The decision on this has a direct influence on the costs as well as the number of new relationships concluded.
- The attributes that the credit decision is based on: which information should be obtained? The strategy is: as little as possible to keep the evaluation process as simple as possible but as much as necessary to minimize the risk of default and enable secure credit decisions to be made. This balancing act needs to be observed in a continuous process and re-evaluated.
- Which external information should be included in the credit decision? This decision also has an effect on the cost efficiency.
Planned degree of automation for credit decisions: 99%.
The observation of the above criteria as well as consistent, maximized standardization of the processes, in which the customers are the central focus, has resulted in the exceptional development of the MeinAuto Group over the past four years.
The number of credit checks performed multiplied from 5000 creditworthiness evaluations in the year 2018 to 40,000 checks in 2021. For 2022 it is expected that around 75,000 creditworthiness evaluations will be performed.
Whereas the credit checks in 2018 were performed completely manually, the Credit Managers at the MeinAuto Group were able to increase the level of automation to 82% in 2021. For 2022 an automation level of 99% is planned. There is no other possible way to manage the expected volume of business, said Greller.
Secure credit decisions based on less attributes
The ratio of creditworthiness evaluation costs to purchases and default risks must constantly be kept in view. The conversion rate, which is so important for online business, must be high enough to ensure that the costs for the necessary credit checks remain reasonable. "Pointless" credit checks decrease the economic viability.
Externally purchased customer attributes directly increase the costs. Decisions regarding the selection of attributes therefore need to be made carefully and reviewed regularly as part of a process of continual improvement. The aim: low costs and optimal minimization of default risk.
The MeinAuto Group makes its credit decisions on the basis of only 20 attributes, of which only three come from external sources. The evaluation process takes place in multiple stages, which makes it maximally cost-efficient.
In the modelling and implementation of these processes the experienced experts from SCHUMANN, supplier of credit decisioning software, made a valuable contribution. And the continuous process of improvement is also closely accompanied by the Project Managers from SCHUMANN, who provide important design input.
Credit Managers become enablers
The digitalization of credit management at MeinAuto Group has led to the creation of value across multiple departments: for example, from the results of credit checks valuable information and recommendations can be derived for marketing.
It thus became clear that credit applicants generated through Facebook advertisements were rejected on the basis of their creditworthiness more frequently than other potential buyers. Facebook advertising therefore turned out to be more expensive in comparison with the completed contracts than, for example, generating prospective customers from some other marketing platforms.
Smooth integration of CAM at MeinAuto Group
It took only four months from the first concept workshop to the software going live. It was helpful for the fast realization that both companies already had the same technology stack available: both worked with Camunda, the enterprise platform for the automation of workflows and decision-making, as well as Rest APIs. All participants needed to have an agile mindset in order to support frictionless cooperation.
The decisive factors for choosing to use CAM included the scalability of the business volume and the online capability of the software solution. CAM is robust and stable, therefore offering the security against interruptions that is essential for internet-based business.
Lessons learned from the last three years:
- Automation is essential and is a precondition for growth in online business.
- It requires the courage to standardize and simplify.
- An agile mindset is necessary for a high speed of integration.
- The credit checking process must be transparent and should be considered in the context of the entire business model.