Startline Motor Finance’s lending takes place mainly through introducers, such as franchised dealer groups, car supermarkets and online platforms.

Paul Burgess, the finance company's chief executive officer, said the growth reflected its pioneering lending philosophy.

Startline’s flexible approach to lending is designed to be used when a mainstream prime lender declines an applicant.

Burgess said: “It makes no sense and is unfair that buyers who fall slightly below prime lender requirements very often end up using what we describe in the industry as a ‘sub-prime’ offer. There should be other options.

“What we do at Startline is treat the applicant as an individual. Of course, we have some hard lending rules but in areas where other lenders take a black-and-white approach, we will take a look at each individual in more detail and, as a result, are able to offer APRs and terms that are comparable with traditional prime lenders.”

In addition to the additional funding, Startline Motor Finance has introduced initiatives that include bringing its customer services function in-house.

Asset Finance International spoke to Paul Burgess about his strategy for success:

AFI: What motivated Startline Motor Finance to bring the customer services function in-house rather than outsourcing it?

Burgess: When we set the business up, our outsource servicing partner was also a co-investor in the business and the plan was for us to grow and mature as a business, and in time, bring the customer services and collections function in-house. In conjunction with the outsource partner, we decided that now was the right time and the scale was such that the business probably needed to have a bit more control.

I think it really helped us gain the initial investment because we already had the backing of a strong outsource partner managing the collections so I think that gave comfort to the investors at the time.

It has worked very well for us during the first six years of our development and the outsource service partner is now working very closely with us to migrate the existing portfolio over.
We’re able to offset the business costs against what we were paying for the outsourced service, but I think that on a net basis we will make some cost savings and our hope is that we can outperform the collections activity by virtue of having more control.

AFI: What percentage of Startline’s business is acquired through online platforms?

Burgess: When we prepared the thesis for the initial investment pitches, we were very much focused on the top 100 franchised dealers and the top 50 independents in the UK and it was really by chance that we discovered the online market and what we’ve found is the desire for the online platforms to advance their technology.

We’ve formed very strong partnerships in the online area, which not only enhances our proposition for the online platforms, but also in the franchised and independent dealer markets. We write about a third of our business volume in the online area and I think the benefit of the experience that we’ve gained with the larger online platforms has allowed us to expand into a burgeoning middle-tier of online platforms. We expect to be able to write more in that space in the coming years.

AFI: Startline lends on a ‘near-prime’ basis, and you’re able to offer rates of interest and terms comparable with traditional prime lenders. What is different in the way you assess the credit-worthiness of an applicant?

Burgess: When we set Startline up we identified a niche between prime and sub-prime, which we called near-prime, and what we found in the market back in 2013 was that if you got approved by a prime lender then all was well-and-good, but if you fell out of prime, then you were headed straight into the world of sub-prime.

Our particular niche is operating like a prime lender in terms of service level, speed of processing and our efforts to be as automated and efficient as we possibly can, meaning that our service levels are at a similar standard if not ahead of some prime lenders in the market.

We don’t have a massive sales team in the UK. Instead, we focus on the larger dealer groups and online platforms that don’t require such a large footprint of salespeople so that we can keep rates at a sensible level. Yes, they’ll be ahead of what the prime-lenders will be offering but by a few percentage points and not by 10-15% APR.

Also, all of our decline decisions are made very quickly and are in general very automated, and we’ve just started rolling out ‘auto-accepts’ for the better level of customer that comes through.

Our unique selling point is that we will manually underwrite the remaining tranche of deals, so we take the time to really understand those customers that fall into a grey area in terms of the traditional lender’s tendency to auto-categorise a consumer as either prime or subprime

First, we take a more holistic view of the customer, and then work with our credit ratings agency (CRA) to extract a lot of information around affordability for the customer both now and in the future.

Our CRA partner, TransUnion, got into affordability and building the algorithms long before the majority of CRA bureaus in the UK, so we feel that their technology is advanced, and we’ve even used some of their core variables within our score-card that allow us to gain a lot of comfort around the affordability of the individuals.

In addition to this, Startline’s ability to have an actual human being looking at the credit worthiness of the customer gives us that edge.

As a business, we’re very analytical, so when we may make some changes to our score card, we analyse it and we learn from it; we’re continually refining what we do to get the best outcome, to automate as much as possible and to drive a good customer outcome overall.

AFI: Despite how the new car market is suffering at the present time, Startline has managed a 20% increase in business volume in Q1 2019. Do you think can you maintain these business volumes throughout the year?

Burgess: The macroeconomic environment is relatively good for Startline at the present time. There’s a general decline in the number of new vehicles being purchased by the UK consumer so by default there’s a general shift into the used market. In addition to this, used car prices have really maintained their momentum over the past months, and the stock is becoming a lot more precious.

A lot of the vehicles sold in the new market over the last few years have been focused on PCP and I think customers really like the flexibility that PCP offers. Those customers that previously bought new vehicles are looking at used cars but they want the flexibility of having a PCP product.

We hear anecdotally of prime-lenders starting to tighten-up their score card, so what we’re seeing is that there are more customers looking for quality used vehicles. Those PCP deals that have historically been done through manufacturers and franchised dealers are now coming back into the system, so there’s good newer used stock available through PCPs.

We are positioned in a unique space in the market, being in the near-prime area of the market and also offering a used car PCP product.

AFI: Has Startline got full UK coverage at the present time?

Burgess: Yes absolutely, we don’t have a large direct sales force because what we find works more efficiently is dealing at director or owner level within the businesses.

We’ve got a small team, along with our COO Gregor Sutherland and I, who go out and meet customers, and then we’ve recently appointed a new head of client relationships and acquisitions Kelly Venthum, who we’ve promoted from within the company.

We build up strong client relationship and when it gets into the actual trading relationship then our operational teams take over, and we initially provide an intensive care process around underwriting and payout to make sure that the whole process operates as efficiently as possible from the start of the relationship.

AFI: In terms of difficulty, is there any difference between setting up a PCP balloon payment on a new or used vehicle?

Burgess: I would say that setting up a balloon payment on a new vehicle is more difficult. It’s no surprise that in the case of Tesla, with a new vehicle and new technology, balloon payments are being underwritten by the manufacturer rather than the lender.

In the used market, the valuation of what a vehicle will be worth in three or four years-time is significantly more predictable than a new model coming into the market. We automate that process and take a view of the vehicle at the inception of the deal, at the half-way point and then also at the end, for all PCP deals we do.

Our PCP product sets the residual value of the vehicle at 85% of the future trade value and that way we’re not taking excessive asset risk and we’re also closely managing the customer’s journey because the last thing we want is for a customer to take finance and find that when they come to the point where they can exercise their contractual right around voluntary termination that they’re not where they thought they’d be in terms of equity with the vehicle.

It’s best to be prudent in these areas and not take excessive risks and I think the new VAT restrictions that HMRC have put in place are really to prevent manufacturers and some prime-lenders taking that excessive asset risk; where the residual value is greater than 100% it gets re-classified as a lease rather than a PCP.

I think the regulation is moving in that direction but as a business we have to take certain risks but we do it in a prudent, measured and analytical way focussing on being a long-term sustainable partner.