Byrider stands out in the auto finance and auto sales industries, as one of the nation’s largest “buy here, pay here” used-car franchises.
The company is both a car dealership and a subprime auto finance provider.
Byrider maintains a line of credit from a warehouse lender so that it can offer on-the-spot loans to car shoppers who might have been turned down for traditional bank financing.
The strategy has proved successful: Byrider has sold more than 1.33 million vehicles through 140 locations around the country.
The company has also been effective in securitizing loans for sale into the secondary market. In the past, Byrider’s securitization efforts involved literally tons of paperwork – pallets of loan documents it had to manually gather and physically ship to a custodian bank.
Today, the auto finance leader has transformed loan securitization with eOriginal® eContracting. The previously cumbersome process is now digitized and streamlined, benefiting Byrider through tangible cost savings and operating efficiencies.
eOriginal caught up with Jeff Anderson, Vice President of Finance at Byrider, to explore how the organization is digitizing to save time, reduce costs, improve access to financing, and extend those advantages to its franchise ecosystem.
Optimizing a Paper-Based Process
Q: How did Byrider manage the securitization process in the past, before you digitized?
Jeff: We would hold paper documents in a vault in our building. Then, before our initial securitization, we’d have to ship pallets of files to Wells Fargo and wait for them to check them all in before we could close on the securitization. Once that custodial relationship was established we would ship on a regular schedule, but there was still a lot of paper being shipped which added time to the check-in process.
Q: Why was that a problem?
Jeff: A lot of things are going on in the timeline to get a securitization done. When the process was paper-based, we needed to get the files to Wells Fargo well ahead of closing. And that’s a chore when things are moving fast. With a digital securitization process, there is less chance of files getting lost and a better audit trail when issues need to be researched.
Q: How does that compare with your new digitized securitization process?
Jeff: Now, we digitally originate a loan, and it immediately goes into the Byrider eVault. That’s our general vault for our main lender. Then we can move the contracts around into a warehouse or securitization entity. It’s just so simple now to move the contracts with the funding.
The documents are essentially at the custodian one day after origination, or whenever we hit the button to make the transfer. We digitally move loan documents from our eVault to theirs. It’s seamless and check-in is more efficient.
Taking Advantage of eVaults
Q: Do you have a separate special-purpose-vehicle (SPV) eVault that you transfer assets into for securitizations, or are files co-mingled in a single eVault?
Jeff: We have a dedicated eVault specifically for originations. It’s part of a custodial agreement and is where all loan documents are initially placed. But after origination, every eVault used in the securitization process is an SPV.
Q: Byrider is a digital contracting innovator. What’s your approximate digital volume?
Jeff: We do securitizations 1-2 times per year. For those, we move around 20,000 contracts at a time.
Extending Benefits Across the Ecosystem
Q: What would you point to as the primary advantages of going digital?
Jeff: eVaults have helped us drive more volume and throughput. And just in general, going digital has given us more frictionless access to asset securitizations and the liquidity benefits of the secondary market.
Q: How does going digital benefit your franchisee network?
Jeff: Individual franchisees aren’t large enough to access the secondary market on their own. But we are finding ways for them to benefit from our ability to securitize and get access to that financing.
And there’s really no limit on loan size. If you’re financed with a local bank, they might be able to lend only $10 million for your portfolio. But securitization gets you more funding than that. And with securitization, the pricing is better and the interest rates are lower than for typical bank financing.
Looking to the Digitized Future
Q: How do you anticipate the market will perform as we emerge from the Covid-19 crises?
Jeff: We expect 2021 to be a return to normal from a volume standpoint. We’re not there quite yet, but by year end we’ll probably be back to normal. Interestingly, although our sales volume took a big hit last year, our portfolio held up quite well.
Q: So that sets you up to continue to issue securities when volumes rebound in 2021?
Jeff: Absolutely. We had a very successful transaction in April, and we are looking at potentially doing another before the end of the year.
Q: Will you pursue additional digitization initiatives to streamline processes further?
Jeff: I’m quite happy with what we’ve already achieved. But of course, processes can always be improved.
By digitizing, we’ve improved operational efficiency in terms of both time and cost reductions. And now we have the opportunity to expand these capabilities from Byrider to our franchise network.
We have been piloting a program where we purchase contracts originated by a franchisee and we have seen great results. In addition, we are about to pilot a similar program where the franchisee retains ownership of the contracts but corporate provides underwriting and collection services with the expectation that those contracts will ultimately be contributed to a securitization. Neither of these programs would be feasible if we had not digitized the document flow.
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