Alt Auto Loans improves access for the underbanked

For millions of people in emerging markets like South Africa, where public transport is slow, unreliable and sometimes dysfunctional, owning a vehicle is more of a necessity than a luxury.

But when it comes to vehicle finance, most individuals, even if they have well-paying jobs, are left out of the traditional lending landscape due to outdated criteria used by major incumbent banks operating in the space.

Eerik Oja, co-founder and CEO of car rental subscription service in Estonia and South Africa Planet42, described the “unfair” situation using this example: Take a teacher who earns a stable monthly salary of 1 $500 and can afford a car loan, but was blacklisted by banks for missing a monthly payment on their satellite TV subscription four years ago.

This lending strategy is one that Planet42 finds utter nonsense, he said.

To make matters worse, banks have increasingly adopted this conservative lending approach since the start of the pandemic, leading to banks rejecting up to 90% of vehicle finance applications submitted today, a added Oja: “There are millions of people who three years ago could have obtained bank loans to [buy] a car but can no longer.

It’s this growing mobility gap that mobility startup Planet42 seeks to bridge, using a technology-driven approach and alternative datasets to make fairer, faster and more affordable credit decisions. The result is that more customers, who would have been passed over by banks, have access to auto finance for the first time, he said.

Last December, the startup raised $30 million in funding and its socially inclusive model has led to the purchase of more than 10,000 cars for customers over the past two years, indicating that there is a huge request for the service in the future.

“Currently, the primary value proposition for [our] customers is that without us they won’t have a car. It’s very simple,” Oja said.

Guaranteed flexibility

Like other startups looking to disrupt the used vehicle finance market, Planet42 has had to build relationships with dealerships, an aspect of their business that has been key to their growth and development.

Their model is quite simple. Customers choose a car they like from a used car dealership and Planet42 buys that car and leases it to the customer on a subscription basis, including rental, fully comprehensive insurance and GPS tracking.

Oja highlighted the flexibility offered by their model, unlike traditional financing schemes which have longer and stricter contract terms of up to several years. “[Our] The subscription contract is flexible, which means that after the first six months the customer can return the car to us at any time if he wishes or he can also buy the car back.

Read more: Online Automotive Marketplaces Generate Profits for MENA Startups

From a dealer’s perspective, Oja said working with Planet42 is not that different from working with a bank. On the contrary, it is preferable because the company is often able to process applications and make payments on the same day.

And for some of the dealerships they work with, the startup now finances more monthly car purchases “than all the banks combined.”

What future for car financing?

Launched in South Africa in 2017, Planet42 has since expanded to Mexico, and Oja said the company plans further international expansion in the future with a medium-term goal of buying one million cars in its initial markets. .

The company is also keeping open the possibility of a more diversified business model in the future, expanding its service from financing primarily used cars to new vehicles.

And while they don’t finance cars for gig economy workers such as taxi drivers or motorcycles for delivery drivers, it’s a small but rapidly growing segment that they might consider. once scale and financing costs are taken into account.

In the meantime, they will focus “on this huge, unaddressed market of ordinary people who need cars to get to and from work,” he noted.

Finally, there’s the prospect of growing Planet42’s presence in the automotive e-commerce space. On this point, Oja echoes Tarek Kabrit, co-founder and CEO of the Dubai-based online car market Seez, who told PYMNTS in a recent interview that the online car sales market presents a huge opportunity. given that globally only 2% of car sales are done online.

Related: Auto retail needs to think more like Uber and Open Table to sell cars online

Echoing Kabrit, Oja said “it’s clear the direction is up” for online car sales, adding that the growth, however, is likely to be incremental initially as it will require a cultural shift.

That said, when the automotive e-commerce industry kicks off, he said, “We’ll be sure to contribute a bit to that as well.”

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About: Results from PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed responses from 9,904 consumers in Australia, Germany, UK and USA. and showed strong demand for one super multi-functional app rather than using dozens of individual apps.

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