E-Contracting Benefits for Customers and Lenders

Why E-Contracts Are Good for the Lender

Simply put, e-contracting offers lenders a dramatic increase in productivity.  A work flow analysis shows a productivity increase of nearly 100 percent in favor of e-contracting over paper delivery.  That means the same person can do almost twice as much work via the electronic process than the paper process.   

Additionally, early adopters of e-contracting will likely gain an initial competitive advantage over lenders not offering e-contracting.  As e-contracting becomes more widespread, this competitive advantage can be expected to diminish.  This means that lenders who are quick to embrace e-contracting technology have a window of opportunity to gain a greater market share, but this window will close once the rest of the industry switches to e-contracts.

Why E-Contracts Are Good for the Consumer

The benefits of e-contracting are clear to dealers, but e-contracting also helps protect the customer.  The use of electronic data versus a hand-written contract means that information can’t be “lost in translation” simply because of less than perfect penmanship.  That, coupled with the informational settings that reject certain values in certain data fields, leads to a much higher level of accuracy in e-contracts than in paper contracts.  While some consumers may assume that an Electronic Retail Installment Sale Contract may be less thorough than a traditional, hard-copy Retail Installment Sale Contract, that simply isn’t the case.  By law, ERISCs contain the same disclosures and formatting requirements as the paper version. 

Security measures lock the contract in place once it is signed.  That means it can’t be altered from that point forward.  Signatures can’t be added later, there are no couriers involved in transporting the documents, and the electronic chain of custody is clearly documented.

In addition, the entire transaction is performed with speed and efficiency, which means less time spent at the dealership.  It also prevents any inconvenient return trips to the F&I office to re-sign corrected documents. 

Obstacles to E-Contracting

If e-contracting provides so many benefits to all parties involved, why isn’t it a universal practice in the industry? It represents a flow change for the dealer.   E-contracting requires retraining of all dealership personnel involved, which can seem daunting.  This issue can seem especially burdensome when viewed over the long-term dealership operation: every time an employee leaves, his or her replacement will have to be trained in e-contracting as well.  In actuality, though, the time spent retraining staff is minimal when compared to the immense benefits of utilizing an e-contracting system.  The increased accuracy and dramatically reduced processing time lead to substantially increased profitability.

Functionality may vary with respect to the specific documents submitted electronically.  In some states, not all of the required legal documentation may be filed or transmitted electronically.  That means that at least part of the contract must be submitted in hard copy.  E-contracting still offers a streamlined process, but perhaps not to the extent of a purely web-based process.  That being said, there seems to be little doubt that e-contracting will become the norm at some point in the not-too-distant future. 

Conclusion

Based on the growth seen in the last two years, experts predict that within five years, nearly all contracts will be e-contracted.  Many lenders are presently engaged in assessing the cost/benefit tradeoff involved in adopting e-contracting.  In light of the faster turn-around time, as well as the increased security measures inherent in e-contracting, it seems clear that any dealer unwilling to embrace this new technology will lag behind their competitors.