We are inundated with discussion about how new technologies promise to change the way that we do business and live our lives. Yes, many of these proclamations offer rhetorical flourish and grand visions. That said, there are new technologies and startups that are using these new technologies to transform the auto industry—even today.
One of those is the impact of artificial intelligence on the auto industry. The advent of sophisticated artificial intelligence and machine learning systems has already transformed some elements of the auto industry and will do so even faster in the future, as artificial intelligence technology improves. Whether you are a finance professional in the auto industry, an auto manufacturer, or even a dealer, it is critical to pay attention to this trend as it speeds into the future.
When first thinking of artificial intelligence in the auto industry, it is easy to immediately point to the rise of autonomous vehicles. It promises to vastly affect the future of the industry itself, from preventing deaths on the road to developing new methods to entertain riders as they are on the road.
Yes, self-driving cars are still a few years off. But that hasn’t stopped artificial intelligence from making its mark in the auto industry. It is just less visible. Here, we’re specifically speaking about the intersection of artificial intelligence and automotive finance—particularly, leveraging AI technology to determine whether a borrower is likely to pay off their car loan. By understanding the probability of whether a particular customer or group of customers are able to pay back the entirety of their loan, auto finance companies can better manage their risk when waiting for repayment.
So how does it work? The magic of this technology is based on probability and good old-fashioned math. You simply need to find historical data sets and use that data (comprised of actual outcomes on prior loans) to train artificial intelligence systems. Those artificial intelligence systems then provide some unique insights on whether a particular loan will be paid in full. When an auto finance company runs its loan portfolio through the artificial intelligence systems, it can usually see trends and the probability of repayment in a visual form—risky loans based on location, for instance.
Clearly, this technology is a game-changer in auto finance. Understand where your riskiest loans are—and the profile of specific borrowers who may be delinquent—can help an auto finance company mitigate its risk, both now and in the future. In other words, it provides a sanity check, as its conclusions are based on cold, hard data rather than emotions.
There are several companies working to offer this technology to the auto finance community. For instance, at Aclaro, we have developed a FinTech – Repayment Risk Artificial Intelligence System that can judge with high accuracy whether a particular borrower will default on a subprime auto loan. On average, Aclaro’s predictions as to a charge off or a paid loan were over 97 percent accurate. These sort of conclusions can be extremely helpful for an auto finance company that is unclear about a potential return in some of its loan portfolios.
Ultimately, while we wait for artificial intelligence to lead to ubiquitous self-driving cars, we can see the benefits of the technology in the auto finance community. By partnering with a company like Aclaro, your company can mitigate risk and financially prepare for the future.