Sales Channel Management And Operational Risk Control For Auto Finance Companies

It takes the first bunch of AFCs(Auto Finance Companies) 10 years for development since they set up in 2004. In the past 10 years, they went through the non-recognition of the public from the outset and achieved 20% penetration rate of financial utilization recently, making great achievement. AFCs’ have set up fine-grained credit management system by identifying their customer groups’ risks using the tools of date mining. Proper credit management leads to lower threshold for multiple potential customers and expected controllable overdue rates, which equipped AFCs with competitiveness compared with banks in auto finance area. However, with several fraud cases hitting AFCs, AFCs then realized the seriousness of operational risk arisen from their service offering pattern with the dealers as the intermediary between AFCs and target customers. The operational risk, which comes from dealers irregular activities, is difficult to identify and collect the loss. Therefore, AFCs are facing with the new challenge-how to manage the channel and lower the operational risk? The focus of this paper is the research of what the current and expected measures taken can lower this operational risk effectively. The method of this research is to compare the AFCs development in developed countries with national AFCs’. The comparable key factors include service offering pattern, financing channel, major businesses, credit environment, laws and regulations and so on. Through these comparisons, it is easy to realize the motivation of the dealer’s irregular activities and what the flaws of the market environment can make this fraud cases exist. On that basis, the paper is focused on how to prevent the risk: first, strengthen the internal management, such as strengthening the cooperative relationship between AFCs and the manufacturers; setting up anti-fraud system; increasing supports to dealers; cooperating with non-governmental credit rating companies; second, expect the improvements of market environment, laws and regulations. All of these are effective ways to lower the operational risk.