Technology is changing the global automotive landscape at a phenomenal pace; from driverless cars to unmanned digital dealerships, these are exiting times by any standards.

However, these have all been ‘loud and proud’ PR moments and what’s often been forgotten is the existence of equally impressive, but often behind-the-scenes technology that’s quite literally transforming the consumer finance side of the industry from the ground up.

The technology in question has not only transformed the way lenders mitigate risk and how payments are managed, but has also aided consumers in both the decision making and application process. Ultimately it enables them to avoid applying with lenders who are unlikely to approve their application and therefore safeguard their credit ratings.

The little black box

Black box technology is nothing new, it turned the insurance industry on its head long ago. However, its use in the motor finance sector remains a relatively fresh concept, but one that’s beginning to gain some serious momentum. That’s despite a raft of bad PR, mostly sprouting from the US, with some borrowers complaining of being left stranded in dangerous neighbourhoods and idling at red traffic lights.

Despite this bad PR a survey has revealed that 33 per cent of motorists in the UK would purchase a car on finance even if the terms dictated that a black box be fitted.

For those unfamiliar with the concept, the black box, or ‘payment box’ as is probably a more appropriate name, is a small and easily concealable GPS equipped device and is usually fitted below the dash or in the glove box.

The device is connected to the vehicle’s powertrain and gives lenders access to disable your car if a payment is missed. Of course, prior to deactivation, the driver is alerted to a payment being due; this is done by way of a flashing light, which is also accompanied by a series of audible tones.

Once payments are brought up-to-date, the lender can then reactivate the car at the click of a button, though a short numerical code is usually provided by the lender and must be entered into the device’s keypad. Once that’s done, you’re free to drive on until your next payment is due.

For lenders, the device helps mitigate the increased risk that comes with lending money to those who are considered to be less credit worthy, it’s essentially a payment management and debt prevention tool.

Soft search

The soft search is easily one of the greatest consumer facing developments in the motor finance world. Enabling consumers to check their potential suitability for a particular finance product before a full credit check is carried out, the soft search is now heavily used by brokers and finance comparison websites in both the US and UK markets.

It works by retrieving information from several sources such as the electoral roll and then matches this against a broker’s panel of lenders and the criteria that applies to each of these. By doing this, the soft search enables brokers to determine the most suitable lender and the likelihood of an acceptance.

Although a soft search isn’t visible to other lenders who carry out a soft search or full credit check, it will be visible when you view your credit file online, but rather than showing as a full check it will shows as a quotation search.

Given the fact that credit searches make up around 10 per cent of a credit score, this technology has clear benefits and has likely contributed to an apparent increase in buyer confidence among a new wave of credit savvy consumers.

Social Media

The idea that an individual’s own personal social media activity can influence their ability to obtain car finance might seem completely off the scale, but it is already a reality for some forms of personal finance. For example, payday loans company Wonga are rumoured to include social media among a staggering 8,000 data points that they use in the decision making process.

As software that enables the digesting of data collected from social media continues to develop, it’s inevitable that it will work its way into the motor finance sector. The ultimate goal for lenders to be able to reasonably predict an individual’s likelihood of defaulting on payments based on historical data collected via the social media accounts of previous and existing customers.

However, privacy concerns relating to the use of social media in credit scoring is a rather heated topic, but vary drastically by country. In South America, almost 100 per cent are willing to share such data, while in Poland the percentage is much lower at 30 to 50 per cent.

The use of such data in credit scoring would of course require an individual to give their consent, but this is already the case with all other forms of credit scoring.

However, for now at least, it remains a minefield and although widespread take up of such a practice is bound to happen one day, it’s unlikely to be for many years to come.