Breaking traditional perceptions of the vehicle finance broker network
Alphabet's broker network is celebrating its one year anniversary. Its strategy to work only with established broker businesses that focus on renewals, retention and referrals is already starting to change the way the sector is perceived.
Vehicle finance brokers have always been an important sector of the leasing market, particularly for customers in the SME sector. The broker market, which accounts for a significant number of SME leasing deals, contains many well-established companies with loyal, well-served customer bases. However, on the other hand, the image persists of an industry whose overall outlook is essentially short term, focused on price, promotions and volume.
Barriers to entry into the broker market were historically fairly low, making it arguably too easy for anyone to set up shop as a vehicle finance broker. There was no guarantee that entrants had the knowledge and expertise needed to not only do the deal correctly, but also support their customers once the deal was done.
Brokers have also come under pressure to become a tactical ‘outlet’ for volume deals when funders and manufacturers want or need to move a lot of vehicles quickly. Although the reputable brokers try to resist these pressures, they know they are ultimately subsidising their competitors who are prepared to cut a deal at any price, regardless of whether the vehicles are appropriate for the specific needs of the customer.
But the broker industry is now starting to grow up and shed the negative aspects of its image. First, the Financial Conduct Authority (FCA) is putting real muscle on the bones of the principles of Treating Customers Fairly (TCF). The FCA's stance is raising both the bar and responsibilities for would-be entrants: the days of getting a consumer credit licence and entering the sector with nothing more than a website and – perhaps – the best of intentions are over.
Second, there is growing push back, especially among smaller, well-established brokers, against the trend for lenders to prioritise sales volume at the expense of flexibility and partnership in their relationships with brokers.
That is why the quality versus quantity conundrum is at the forefront of our thinking when considering the development of a partner programme such as Alphabet Partner.
During the creation of Alphabet Partner, it was important to target well-established brokers who are profitable, have good staff retention and high levels of renewals and referrals. These are companies with a proven track record, who appreciate the value of working really closely with a funder on a sustainable, long term basis – rather than trying to subsidise other, shorter-term business models. It was also important to seek out partners with particular areas of expertise such as electric vehicles.
Creating an exclusive network of around 40 brokers with significant knowledge and experience, offered brokers a unique chance to help develop a modern vehicle finance network founded on progressive values, a personalised approach and the spirit of true partnership, in conjunction with forward-thinking technologies, such as a new, market-leading IT platform.
The industry’s future lies in building long term relationships, offering sustainable deals and helping brokers support their customers. Challenging the traditional image of vehicle finance brokering has proven successful with brokers and customers alike.
But what about those historic low barriers to entry into the sector? Will 'bedroom brokers' ever become a thing of the past? The advent of the FCA marks a sea-change for the sector, helping the industry understand that the integrity of the relationships between funders, brokers and customers is crucial to getting TCF right. A true partnership is the way to go.