Technology players are attacking the automotive industry from all angles. From competing head-on with the decades-old dealership model to autonomous driving, investors are chasing automotive commerce startups. Deals and funding in auto commerce have grown steadily from 2012, surpassing $3 billion in 2017.
Auto finance is also experiencing its own mini-renaissance. Research shows that incumbent financing options and experiences create “decision fatigue” in many car shoppers. Negotiations are frustratingly long. There are too many steps and too much paperwork involved in financing a car. At most dealerships, “the auto finance process of today looks much like it did several decades ago — paper-based, manual, and completed behind the scenes,” PwC wrote in a recent paper on the auto finance industry.
Indeed, digital origination of auto loans is still in its relative infancy. Only 5 percent of consumers in the U.S. have ever applied for an online auto loan, according to a study conducted earlier this year by FICO. More than any other country surveyed, American car buyers still prefer to get financing through dealerships (73 percent). So, while ease of financing plays a crucial role in the car buying process, a very small minority actually choose digital channels to apply for auto loans.
There have been two approaches to upstarts entering the digital auto financing market. First, we’ve seen just a few stand-alone online auto lenders that provide financing services to dealers and customers. The more common model pursued by fintech startups in auto commerce is developing end-to-end transaction capabilities to buy and sell cars. In this framework, financing is an ancillary service for auto buyers and sellers.
Here are some of the players you should know in digital auto financing:
Stand-alone financing platforms
AutoFi: Founded in 2015, AutoFi connects dealers to lenders to help customers find financing when they shop for cars online. Dealers can integrate AutoFi into their websites and dealerships to provide auto financing on the fly. The company has raised almost $30 million to date, including investment from Santander USA and Ford Motor. Earlier in 2018, AutoFi partnered with Chase.
Other competitors: Autopay
End-to-end auto buying and selling
AutoGravity: AutoGravity uses a slick financing platform to enhance the overall digital car buying experience. The idea is to flip the process and help a consumer secure funding before they begin shopping for a car, not after. The company recently inked a deal with Audi Financial Services, adding the German carmaker to its lending-and-leasing platform.
Carvana: After ordering a car and getting financing online from Phoenix-based Carvana, a customer picks up her car from one of the company’s car vending machines around the U.S.