The future of the modern automotive industry will be marked by innovations in autonomous vehicles, electrification, and increased connectivity. Auto lenders need a plan to ensure that their IT infrastructure keeps up with dynamic trends and an ever-changing market. As the industry evolves and digitizes, data security and privacy are more critical than ever. The SEC’s proposed Outsourced Vendor Risk Management Rule highlights the importance of monitoring vendor risk, especially in the wake of Silicon Valley Bank’s (SVB) failure.
Vendor Risk Management is crucial in auto finance, as lenders increasingly rely on third-party vendors for services and technology solutions. Robust vendor risk management programs ensure vendors meet high standards for compliance, security, and reliability. Especially since the consequences of vendor mismanagement can be severe.
Buy Vs Build
To determine which vendor will meet their demands in a competitive market, lenders must consider factors such as time to market, return on investment, cost, scalability, and market penetration. One key decision that lenders must make is whether to buy or build their technology solutions. While building solutions in-house can give lenders greater control and customization, it can be extremely time-consuming and costly. Conversely, buying pre-built solutions from third-party vendors offers faster time-to-market and cost savings but can increase vendor risk. Lenders must evaluate the pros and cons of both approaches and determine which approach best aligns with their business objectives, budget, and risk tolerance.
Establishing a Vendor Management Program
An effective vendor risk management program requires proper due diligence during vendor selection and ongoing monitoring. This includes assessing a vendor’s financial stability, security protocols, data privacy policies, and regulatory compliance. Lenders must establish clear service-level agreements and contingency plans in the event of vendor disruptions.
The Role of Fintechs
Fintech organizations, in partnership with IT teams, can lead the transformation of an organization. It’s important to utilize the right vendors and technology to improve efficiencies and core infrastructure and ensure key data is structured and consumable. The SVB collapse is a reminder of the importance of strong risk management and compliance programs.
Keeping up with the ever-evolving regulatory environment, managing risk and properly vetting vendors are all essential. For example, Informed conducts ongoing monitoring and a thorough internal vendor risk management process that is extended to our clients, especially given the FDIC announcement protecting all depositors.
By taking a proactive approach to vendor risk management, lenders and fintechs can protect their business, their customers, and their reputations while freeing them to focus on their core competencies and growth strategies. Contact Informed to learn how we can help!
With more than 15 years’ experience in the financial services industry, including tenures at Santander Consumer USA and Visa, Jessica Gonzalez is now the Director of Lending Strategies at Informed.IQ.