Auto finance represents a growing part of UK lending and banking. Many providers have chosen to diversify their funding base with savings.
Auto Finance: At a glance
Consumer credit has grown rapidly in recent years and motor finance has significantly contributed to that growth. Car finance has seen the fastest expansion amongst UK consumer’s credit and loan debt. By any measure, the amount of finance made available to consumers and businesses for the purchase of private or commercial vehicles is significant. Motor finance providers, ranging from the main high street banks, to specialist consumer credit businesses, to the car manufacturers themselves with their own finance arms, represent a very important part of the UK lending and banking industry.
Challenge for car finance lenders
Given the size and scale of the auto finance market, providers of motor finance must be able to generate the necessary funding to allow them to lend and meet the increased demand. One of the key lessons of the financial crisis of 2007 for lenders was not to be overly reliant on wholesale markets. This has, in part, prompted some providers to assess their funding strategies to help them diversify their funding base, manage the cost of funding and manage currency risk in anticipation of any volatility.
Retail savings as a flexible source of funding
One solution is for lenders to become fully authorised banks, enter the retail savings market, and attract deposits from savers. This helps diversify funding through a more stable source. This is recognised through a firm’s Net Stable Funding Ratio where more favourable treatment is given to retail savings as a high quality source. With rates still at historically low levels, retail savings can offer a low cost of funding compared to other forms. Lenders can manage potential currency risk by funding loans made in sterling through sterling deposits.
A white labelled solution for online savings
We work with motor finance providers who wish to enter the savings market, providing a full end to end savings management service where we manage all operational and customer activity on behalf of the client. Alternatively, we can provide a full range of support systems through a fully hosted service, allowing banks to manage their savings operations in house.
For these organisations, brand reputation is absolute. Customer service, and moreover customer confidence, is critical to business success. They must have complete trust that we can deliver a quality customer service on their behalf. Newcastle Strategic Solutions deliver award winning customer service to our auto finance clients.
For many auto finance providers, we de-risk entry to the market. In accessing our existing infrastructure, clients are able to get to market quicker than if they had tried to build the necessary infrastructure themselves. Further, clients are assured of our ability to provide a service compliant with all regulatory requirements and know that, in accessing a shared yet individually branded service, it is a cost effective solution.