eSignatures in the F&I Office

Technology is constantly changing the way dealerships do business and one component that is no exception is electronic contracting (eContracting) with full electronic signatures (eSignatures). EContracting alone – generating the contract electronically – has been in the F&I office for some time, and has seen significant adoption. But that final piece - obtaining the electronic signature - has seen a much slower adoption. That, our experts believe, will soon change.

The technology needed to collect a fully electronic signature has been around for quite some time and laws recognizing electronic signatures as legally binding were enacted in 2000. While eSignature has seen rapid adoption in other industries, it has lagged behind in the automotive world, and specifically in the F&I office.

David Trinder, CEO, F&I Administration Solutions said that before talking about the adoption of eSignatures with F&I products, providers need to consider the balance between an acceptable level of security around the eSignature and the resulting cost. “We have many customers who are doing everything other than the signature electronically. The challenge with eSignature, however, is twofold. First, we need to get the process out there so people can use eSignature across the board (a few systems provide it but it is far from mainstream). The second challenge is the cost. You can do an eSignature with little security around the process or with maintaining the integrity of the signature after the fact. However, if you want some level of security, it will need to be supported by technology providers who specialize in this and that will add to the cost.”

Brian Reed, president and CEO, Intersection Technologies Inc./F&I Express, described eSignature as the end game for where the market is going. “There is a lot of momentum for it right now in conjunction with eContracting. ESignature is an enabler because it is easier to process for the dealer. There are a lot of benefits for eContracting, and a lot of dealers are doing it, but eSignature has been largely ignored. Without eSignature, F&I managers have to print out all of the documents to have the customer sign; they prepare them electronically, print them, then have anywhere from 3-5 signature pages to present to the customer. That is a stack of paper for the F&I manager to go through to pull out the signature pages and then have the customer sign each one.”

“If you take it outside of the automotive finance world, eSignature has experienced explosive adoption around the world,” said Steve Bisbee, president and CEO, eOriginal Inc. “Every kind of business and app can sign electronically today. Adoption was originally driven by companies who wanted to get the cost of doing business down, but the real driver today is the consumers’ lack of tolerance for paper. They are accustomed to doing things electronically, and doing them anywhere, on any device.”

“We have been in business since 2005, and laws have been in place to support eSignatures since 2000. We are just now scratching the surface of potential in dealerships,” said Dan Doman, vice president and general counsel, RouteOne LLC. “It takes a long time to effect change in dealerships, but I am happy to report we’re making headway.”

“ESignature has been around for a while,” said Strati Papageorge, vice president of sales and F&I product operations, DealerTrack Technologies. “When I started in 2003, we were just rolling out eContracting with eSignatures on signature pads for retail installment contracts. It wasn’t until recently that we started offering that option from an aftermarket product perspective. Years ago, it was a real chore to get those pads to work. Now, they are really ‘plug and play’ with virtually no issues. Technology has come a long way and we are doing more on iPads now, as well. Automotive is just a little behind other verticals when it comes to eSignatures; Technology moves slow in the dealership world – specifically F&I. They are not leaders on new technology, but we are seeing greater adoption now.”

“Retail installment contracts, by far, are where the bulk of eSignatures are being used in automotive today. But from what I’ve been hearing in the past year, we are about to experience a pretty significant growth during the next 12 months,” said Michael Laurie, vice president of product strategy, Silanis Technology. “Even though we started in 2001, the use of eSignature has seen slow adoption in auto finance over the years. It has taken a long time, but we are starting to get over some of the issues that have been barriers to adoption.”

Overcoming the Objections

One of those barriers has been consumer acceptance of an eSignature. Consumers have gotten used to viewing contracts on a screen, but many still believe they need to have a pen-on-paper signature for it to be valid. As younger generations are moving into car buying, acceptance is rapidly gaining ground. Today’s consumers aren’t just aware of eSignature technology, they probably use it in their daily lives for everything from buying groceries to purchasing hardware. This is good news for dealerships that want to bring those same efficiencies into their operations without any push-back from customers.

Another one of the barriers in using eSignatures was the acceptance from lending sources. While it is somewhat of a simplification of a complex process, lenders take the retail installment contracts and sell them to investors. If they use contracts with eSignatures, not only do they need to ensure they are as secure as the paper versions of those contracts, but in many cases they need to completely revamp their workflow. In the long run, it is a far more efficient process, but the lenders had to be willing to make the up-front investment. F&I is impacted because most managers were unwilling to have separate processes for retail installments and F&I product contracts. While the two have different requirements, at the end of the day F&I product providers will need to follow in step with lenders in order to stay relevant and competitive.

“From a lender standpoint, we definitely have captives pushing to use eContracting,” said Papageorge. “Certain captives have as high as 60-80% penetration on eContracting, which includes eSignature, and they are leading the charge. Since they have the most sway over dealers, if they mandate their preference of eContracting, they can drive adoption in dealerships. On the aftermarket side, we haven’t seen a lot of providers pushing for eSignatures – some have started to accept it, but we don’t see a preference for it. And from the F&I manager standpoint, they are asking ‘if I can eContract the retail installment, why can’t I do that on F&I also?’ We need one process and one consistent package. The lack of one has really encumbered eContracting and eSignature for years. It would benefit all parties to get on the bandwagon.”

“There is a federal law that says if you can do it on paper, you can do it electronically, along with inserting some consumer protections, such as the consumer being allowed to review the contract and having the ability to get a copy,” said Bisbee. “That becomes important in the automotive finance world, and enables eContracting. But in auto finance, we have retail installment contracts, which are security instruments. They are a contract between the consumer and dealer, and then the dealer transfers that retail installment contract or sells it outright on the secondary market. The challenge was determining how to ensure that there is only one copy to prevent it from being sold multiple times. They revised the law – called Article 9 – also adopted in 2000, and now a contract can be signed electronically, and the retail installment contract is transferrable into the secondary market.”

Doman explained that the finance sources get capital by taking retail installment contracts, bundling them up and offering them to investors through the securitization process. These portfolios have a fairly wide acceptance of eContracting. However, he pointed out there is still work to be done there. They have to review the eContracting systems generating the contracts, and they may need to engage outside counsel to do those reviews. “It is not a great deal of effort, but it is still effort to include eContracts in their offerings.” This is something Doman says finance sources consider when they agree to participate in eContracting from dealers and consumers.

Amanda George, director of product development, RouteOne LLC says eSignatures themselves aren’t even the largest part of the cost “It is all in the data. It is a shift in the process, and eSignature is one piece of what we consider a part of eContracting. There are many aspects of what makes a contract, and eSignature is at the end. How we define eContracting, with help of partners, is that it also includes data validation to make sure the data is not only accurate, but accepted by the lender so there are less contracts that fall apart after the fact. When we talk about costs and investments, they are usually more in that area than the actual eSignature piece.”

“Some of the challenges were that these are really complex transactions,” said Laurie. “In terms of what you do with the customer, it is not that complicated, but how automotive gets funded from different sources has seen a big impact from eSignatures and eContracting. It has come a long way. Today, it is being used extensively in banking, lending, specialized types of lending like automotive finance, real estate and consumer credit applications, and of course for any type of investment process out there. It has just been a question of industries understanding what legal and compliance issues apply, figuring out that they could use it and determining the processes that would work well and give a good overall experience. As a result, we see them used in a lot of different places today, and we will see that expand a lot in the next year.”

Much of it comes down to the same question – if it were necessary, would it hold up in court? And the answer across the board is yes. All of the experts noted that electronic signatures are no different in a legal sense from those on paper. A contract, they all said, is a contract, no matter what form it takes or how the signature was obtained. While that is far more important on the retail installment contract than on the F&I product contract, by adhering to the same standards, providers can make it more of a seamless process for F&I mangers as they do their paperwork. This will cause the F&I managers to be far more receptive and more likely to use the new systems to sell products.

“Auto finance contracts with electronic signatures can be sold on a secondary market because there is considerable security around not only the signature signing process but also the electronic documents themselves” said Trinder. “Most of these contracts are kept in an electronic ‘vault’ for just this purpose. There is a considerable cost to this, and it is doubtful that the F&I product providers will be willing to pay. The key therefore is to deliver a solution that balances cost against obtaining and maintaining the integrity of the signature. The fact is, it is easy to deliver a solution in which a person can swipe their finger across a signature capturing device and attach it to a contract. How, however, do we prove that the person signing is who you think they are, and how do you make sure someone did not remove the signature later and add a different one? Perhaps more to the point, should the F&I product industry care? Of course, I think they should, and especially since the balance between cost and document integrity is certainly available.”

Trinder explained that even though some providers may not require a dealer to send them the signed contracts, they do expect that if the physical contract was needed, the dealer would be able to produce it. Extending this philosophy to electronic documents should be done with the appropriate considerations. For example, surely vaulting of F&I product contracts should not be necessary. How often has a customer claimed that they did not pay for a service contract? In fact, providers should ask if they have ever actually disputed a signature on a contract. However, does that mean that security around these signatures is of no concern?

Collecting the Signatures

Signature pads have been around for quite some time, and are used in a wide range of industries. Today, they remain one of the top ways F&I managers collect eSignatures in their dealerships for the various types of contracts they handle. But even that is starting to change.

Tablet technology has slowly been seeing adoption in dealerships for a wide range of uses, from selling the vehicle itself to presenting F&I products. And now the experts agree the technology is starting to see more use as a signature pad, giving dealers and consumers a greater range of choice.

“How do you get these things signed?” asked Bisbee. “You can sign by typing in your name, and your signature appears on the document. That’s referred to as a text-based signature, and is the most common. But with the advent of tablets, we see consumers using a stylus or their finger and signing their name on the tablet. People are finding that process easier, and then the signature is embedded in the document. Then there is the ‘click to sign,’ option, which is literally just clicking a box. Sometimes that produces a signature on a line and sometimes it doesn’t. Federal law permits signatures to be any form – you can even use a voice or a sound. You could have customers sign documents with their voice, saying ‘I Agree’ and it can be a legally binding signature, although there are some places that don’t accept voice. You can even take an image of your signature and apply it to a document, or do things in person with a signing pad. Most often in automotive industry, the F&I guy has the deal on his screen, and he needs to have the consumer sign the contracts. He has a signing pad, and sometimes there may be disclosures displayed on the pad. But more likely, the customer is given a paper copy of the contract, and then the signature is attached to the electronic copy. The trend is going to tablets, where F&I managers don’t need a signing pad with a separate monitor, they can do everything on the tablet. That technology is just beginning, but that’s the way it’s moving. So there are a lot of different options, depending on the situation.”

“The tablet is an alternative method that I really like a lot,” said Reed. “It is a good process, where the dealer finalizes the contract on the computer, then has an app they can go into on any tablet, load customer’s information, then hand it to that customer. The customer can review the contracts, scroll through the terms, and after reviewing each section, the customer clicks "I've reviewed", at which point the time and date is recorded. Then, once they have accepted all of the terms, a signature box pops up. They sign the tablet using their finger, and they’re all done.”

There are two different pieces of technology used in finalizing contracts explained Laurie - one for authenticating users, and another for capturing the signature.

“In automotive, we’re seeing all the major approaches. One is ‘click to sign,’ with the customer clicking an icon on the screen, which captures the intent of the signer. The other approach we’re seeing quite a bit is using a tablet to capture a hand written signature as part of the process. Either one is a good way to capture a signature. And if you capture hand written signatures on a tablet, that generally covers the authentication part as well; you are capturing the data.”

Papageorge noted that the use of tablets as signing devices is rapidly becoming more prevalent and he predicts signature pads will decline. Single function devices are not nearly as desirable for dealerships. They are still a financial investment yet a dealership can’t do a whole lot with them. He says they are in the process of launching menu solutions that offer the ability to be signed on an iPad. And while nothing is available for an iPhone today, Papageorge said he could easily imagine that happening in the future as well. All of these options are just starting to pick up more steam, but signature pads are still the predominant means of capturing a signature in the industry. “I think adoption will be slow and steady. Mobile is where signature capture will happen now; which devices – tablet or phone – I don’t know, and every provider will have a different view, so it is hard to say about standardization. But there will definitely be a bigger push to mobile.”

Next Steps for Providers

While adoption by the dealers is certainly one of the major hurdles still faced in getting the penetration rates of eSignatures up in the F&I office, there needs to be wider acceptance and support from providers to help drive that as well.

Laurie noted that, in the end, it boils down to providers having the options built into their contracts, and excellent integration with DMS systems to help drive the concept of a single signature being applied across multiple contracts. “From what I’m hearing, eSignature penetration levels will easily double in the next 12 months, and the numbers might be higher,” he said. “But I think the possibility that it could double is a strong one based on what I’m hearing. We are seeing providers starting to have the ability to handle the whole deal jacket – the only place there is still a barrier is the state forms. The rest of it boils down to good integration with DMS systems out there, and we have seen providers working toward that end. Integration into the DMS is making that a much easier process to implement for the dealer, and the experience for the F&I manager is also easier. They don’t control the DMS though, and that has been a good chunk of the issue. They have to rely on other technology to capture that data, so it is not as transparent and easy as it should be. It boils down to this: dealerships have to want to adopt it, and push it out to their customers. We’ve been seeing that, which is why we’re bullish. Providers with the bigger dealer groups have the ability to exercise influence to make this happen, and they are pushing for it. Things they have been working on include bringing funding sources to the table and good integration with all the systems and forms libraries needed to create deal jackets in the first place. Bringing all those things together is the biggest thing providers can be doing.”

Reed stated, “As technology providers, we need to support this evolution in the F&I office. Bring those dealers into 2014, instead of leaving them stuck in 1990.” He mentioned three things he believes need to happen for eSignatures to become mainstream in the F&I office:

• The marketplace needs to embrace it - from the technology providers to the dealers. Providers need to make sure they have eSignature as an option for all their clients.
• Dealers need to embrace the change to technology. If dealers aren’t preparing contracts electronically today, they need to start doing this and the key is having a quick and easy process.
• The customers today expect processes that use current technology, not impact printers and pre-printed forms. More and more customers are going to demand eContracting and eSignatures as the way they do business.

George believes that providers working more closely with lenders and dealers to ensure all forms are available electronically – and are formatted to allow for eSignatures – is going to be a key part of the evolution. Doman agreed with her, stating that, “We are just embarking on the journey to complete eContracting. We have some major players who use it. They’re at the halfway point and they are the ones pushing it right now. But industry-wide, we’re just scratching the surface. Everybody benefits from eSignatures – there is a better cost structure, more efficiency and better disclosure. Everyone benefits.”

“I would say providers need to be enabling eSignature as part of the process to help drive penetration rates,” said Papageorge. “Things are still lagging a bit in this regard. We are seeing some providers moving more toward digital contracting, offering eSignature and really working with dealers to convince them of the benefits. In that way, they are not dissimilar from captives: if providers have certain dealers who sell a significant volume of their products, it makes sense to start with them and leverage that relationship. Outside of that, it is really a training point – educating the F&I manager of the benefits from an eContracting process with eSignatures as a component. It has got to be a consistent process though – if providers can do that, then they break down F&I managers’ main reasons for not adopting the technology.

In summary, Trinder pointed out that the bottom line is not about convincing dealers to go the route of eContracting and eSignatures – it is about establishing a process that everyone is comfortable with. “There has to be a balance between affordability and security as well as a smooth process for the dealer. The key is going to be for providers to look at the potential ramifications of various levels of security and decide what they are comfortable with. What is irrefutable, however, is that electronic signatures will become as natural a process in the F&I office as electronic contracting is today and F&I Admin looks forward to delivering electronic signature solutions that will drive that process.