Years ago, the thought of buying clothes or shoes online seemed unlikely. After all, there are certain types of products that logic would dictate need to be purchased in person.

But today, there are few products that aren't purchased online, and even big-ticket items like cars could soon be routinely purchased sight unseen through the web.

While auto companies and dealerships use the web extensively to market the cars they sell, purchases that don't involve a visit to a showroom are still relatively uncommon, and not just because consumers won't make such a large purchase over the internet.

Instead, one of the biggest barriers to online car sales is financing. Since most auto purchases are financed, consumers can't just make a payment online for some brand new wheels. Instead, most need to line up financing, a step that is often completed at the dealership.

But that could soon change thanks to the help of fintech, which has fueled the growth of online lending and turned it into a multi-billion dollar business. 

Ford, one of the largest auto companies in the world, last week announced a deal with AutoFi, a San Francisco fintech startup. AutoFi's platform allows dealerships to sell cars to customers online by bringing the financing component of the purchase process online.

When a customer at a dealership using AutoFi is ready to purchase a vehicle, they can complete an application through AutoFi's platform. AutoFi shops applications to its network of lenders, and once a lender and financing offer is selected, allows customers to complete the financing process digitally.

While some states have laws requiring customers to sign paperwork in person at the dealership when they purchase a new car, Ford's agreement with AutoFi, which includes an investment in the company, will help pave the way for true online car sales.

That not only has the potential to upend the car-buying experience, but in time it could even reshape the auto industry given that many consumers aren't fans of the car-buying experience offered by dealerships today.

In fact, Ford itself notes that a new Harris Poll study it commissioned found that "83% of Americans say they would like to spend as little time at the dealership as possible when shopping for or buying a car," which might explain why even dealerships themselves are open to technological change. 

As Rick Ricart, VP of sales and marketing at Ricart Ford, the first dealership to launch Ford's AutoFi pilot, stated, "Technology is transforming just about every type of financed consumer purchase, and this new digital capability will help make that change for automotive purchases and deliver great experiences."

No market untouched

Ford's agreement with AutoFi also demonstrates the extent to which fintech continues to impact virtually every segment of the finance sector. From consumer loans to real estate, there are few segments of finance that fintech upstarts are not active in.

Because of the way cars are sold, and how financing is a huge profit center for auto dealerships, auto lending is a arguably a tougher one for fintechs to crack. But the rewards could be huge.

As Dow Jones Newswires' Peter Rudgeair notes, there are more than $1trn in outstanding auto loans in the US, and in Q3 of last year auto lenders tied a record by financing $150bn in auto purchases. So expect more fintech activity in this space, as well as in other lucrative niche financing markets.

For more on this topic, see:

Patricio Robles

Published 31 January, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Deri Jones, CEO at SciVisum Ltd

car sales - with the rise in electric car / self-driving car clamour in the market - some folks are predicting the slow decline in car ownership; as we rent self-driving cars by the hour in an ad hoc manner.
The big car companies may not like that: as a sizeable chunk of the profit is from finance they provide, rather than the car itself!

over 1 year ago

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