You were appointed managing director of BMW Financial Services two years ago. What state was the business in then and how are you making your mark?
When I took over, we had just come into the regulated period. We have a huge amount of customer touchpoints to take into consideration. We had to prepare the culture and the tone so that treating customers fairly (TCF) was seen as everyone’s job.
I took the business over in a good state, but we have made changes. For example, all retailers now have the same package , irrespective of size. There was some noise in the network when we did this because some dealers were not getting the terms that they were previously, so we had to manage our way out of that.
Our goal is to be the customer’s obvious choice .
You finance about 70-80% of BMW/Mini new car retail sales and half of the used business, so what impact have the changes to dealer terms had on your growth levels?
We were not tracking at the growth we wanted to – there are independents that are also attractive from a retailer perspective – but we have still enjoyed five years of fantastic growth, including 12% last year across the business.
We are now a £3 billion business. Many of those dealers that had started to use other providers are now back with us. Why? Partnerships – the strength of our relationships and we are consistent and reliable. If we were volatile with our approvals, we wouldn’t have the relationship.
Alphera is growing more quickly and is now 20% of our portfolio overall, mainly used car finance with independent dealers. It operates independently , but shares certain back office functions.
PCP accounts for the majority of your contracts, including a rising share for used cars. How does this form of finance affect the market?
We have seen the customer change cycle fall – it was three or four years, now it is sometimes less than three years. It is due to the huge percentage of deals on PCP.
It’s nothing new, but it is more widely available for used cars, where we are seeing a move away from personal loans and HP . As we move from ownership to usage, PCP and leasing will become even more widely accepted. From a customer point of view, PCP gives them more options at the end of the contract and takes the risk away – they are protected from residual value movements. It is an opportunity for businesses like Alphera to take business on unsecured loans and I see it being the strong product in the marketplace.
There is also an opportunity for growth in the older used car market, cars that are three to four/five years old. It’s a different price proposition and customer demographic, but PCP makes a BMW or Mini more affordable. It also builds brand loyalty and gives them the opportunity to change their car after three or four years, which means more regular change cycles.
As we move towards usage models, particularly within cities, car sharing and hailing services will become more popular. We are working with BMW and logistics companies and we will see
a breakthrough at some point. There are still ways to connect people to a BMW experience.
The Financial Conduct Authority (FCA) has changed the way the industry acts. What did it mean for BMW Financial Services?
How we operate is how we want to operate, because that’s the way to get customers to come back. So, for us, it’s business as usual. We have to create transparency through our tools and through our retailer partners. It’s our duty under FCA that retailers follow the processes that allow us to be compliant.
The biggest change is the documentation and evidence about what we do. But that’s not a bad thing; it has helped us to improve loyalty with customers and our retailers as well. It gives us a sustainable, ethical business.
There has been a lack of innovation in the funding sector for a number of years. Will anything change?
The industry as a whole has been very static in its business model for the past two decades. We have to be ripe for disruption. It could be new entrants, we don’t know yet. So we have to focus on doing things well for the dealer and for customers.
How can a massive corporate like BMW prepare for the potential disruptors, which are often agile, fleet-footed start-ups?
We started a corporate development programme last year called the Innovation Lab. We had 127 formal applications from thousands of initial expressions of interest. We held a pitch day and we selected five to work with us in the business. Part of it was to look at what we didn’t know – we wanted a fresh perspective. But I also wanted my management team and our people to think out of the box, to think like a start-up even though we are a corporate.
Out of the five, we have an ongoing relationship with three and we are running a pilot scheme with one, a company called Divido. The big learning was the level of internal engagement – people wanted to get involved.
Tell us about the pilot scheme with Divido.
We started trialling a simple financing solution for aftersales business with three dealerships in January. Where there is a large servicing or repair bill, we are offering a finance option to give the customer a painless process of paying in instalments. The early feedback suggests a lot of interest from customers and some of them have taken it up. We are trialling it at 0% finance, so it’s either pay now or spread the payments over six months.
The pilot scheme gives us an opportunity to wow our customers. It’s an opportunity to offer another experience at another touchpoint.
We are also working with a company called Cazana on gathering used vehicle data and prices for market intel. It’s an interesting proposition from a residual value and market understanding point of view. The data provides the market value of vehicles more accurately and with less effort than traditional sources.
We are also looking at insurance with a company called Wrisk, how we can improve the proposition and how we can make buying insurance easier and more flexible. It will be 2018/19 before we see any output.
With our cars we pride ourselves on our innovation, but as far as the customer journey is concerned, there hasn’t been much . We need to be on the front foot.
BMW caused some shock waves with the launch of Retail Online in 2015. How successful has the operation been to date?
We have sold more than 800 vehicles but there have been 126,000 click-to-purchase transactions. Customers want to dip in and out, it’s about giving them choice and availability; often they will go back into the dealership anyway. As an introductory channel, we are pleased with the development and finance is included within that.
You largely have a captive audience for BMW Financial Services via the franchised network. How are you planning to grow the Alphera business?
Alphera is also driven off relationships. It’s the speed and availability of the decision. The customer is there ; they want a quick decision. We have several hundred dealer partners and we will grow organically. But there is lots of competition. We support the dealers; we offer them training and education, which is important because they are our interface with the customer.
What challenges could undermine your plans for growth?
Our challenges are keeping pace with consumer demand and expectations and adapting quickly enough. Like banking, we have legacy systems; we have to improve our online presence and our interactions; we have to improve the leadership of our people to make sure they have consumers at the heart of what they do.
We are entering a period of elections in the EU and our Brexit scenario could bring uncertainty – we have to be watchful. But within the group we are confident that the market is holding up for new and used vehicle sales. We don’t see any signs.