Everyone wants to receive money faster, and auto dealers are no different. But real-time payments have been slow to catch on for car sales.
Cash-flow management was a top concern for vehicle manufacturers and dealers, according to Capgemini's
Those tides are starting to shift, with more lenders hooking up to real-time rails to facilitate faster money movement so that dealers and original equipment manufacturers, or OEMs, can get much-needed cash quicker.
The auto finance market is substantial. Nearly $2 billion per day changes hands between auto lenders and auto dealers through indirect lending, which is the process through which banks, credit unions and other financiers buy car loans from auto dealers.
Dealers purchase cars on their lot from OEMs and finance that purchase through a floor plan line of credit. When a consumer buys a vehicle from the dealer with financing, the dealer fronts the cash for that purchase to pay its floor plan while it waits for the money from the lender that bought the retail installment contract. Dealers are often left on the hook for one or two days, sometimes longer if the sale is on a Friday evening, until the funds are transferred, which pressures cash flow. Speed to funding is a key metric that lenders use to differentiate themselves from competitors and entice dealers to send them contracts.
There's also a direct-to-consumer model, as well, largely employed by electric vehicle OEMs such as Tesla and Rivian, that circumvents dealers. But the end result is the same: OEMs have to wait for cash from the lender that is financing the customer's purchase.
Tesla wants faster payments
Some auto finance firms are adopting real-time payments. Origence, a
Tesla is Origence and Catalyst's first FedNow user in auto lending.
"Tesla is a publicly traded company. They have their month ends and quarter-end figures that they have to do," Origence Chief Financial Officer Neetu Bhagat said. "They're an OEM, so cash is always an issue. This mechanism allows us to make settlements for them on the weekends [and] late at night, whether it's 7 p.m., 8 p.m., 9 p.m."
Origence and Catalyst are responding to the challenge that e-commerce vehicle sales pose to indirect lenders, Catalyst Chief Operating Officer Brad Ganey said. "Consumers can go on that website anytime and buy a Tesla. You want to be competitive in the instant payments market, but you don't want to have credit union staff sitting there 24-7 waiting for a Tesla deal to happen."
With the FedNow integration, credit unions connected with FI Connect can fund Tesla purchases around the clock without a full-time employee present, Ganey said.
Origence and Catalyst have funded 119 loans for $5.2 million since August 2024, Origence said.
Tesla has been a key voice pushing for instant payments in auto lending. TD Auto Finance, the U.S. auto lending division of
"Tesla is a big supporter and has helped us grow that relationship and led to a further increase in volume," Jones said. As of Oct. 31, TD Auto has sent 429,663 payments through its RTP network to 4,840 dealerships.
Tesla did not respond to a request for comment.
Auto finance represented the first use case for RTP at TD Bank, Jones said, noting that its auto division is now working with other business lines to deploy RTP in their respective offices.
U.S. Bank was also a first-mover in
The Minneapolis-based bank declined to comment for this article.
Why dealers benefit from instant payments
Large franchised auto dealers must manage interest expenses on multimillion-dollar floor plan credit lines in addition to everyday operating expenses, which makes cash-flow management key to maintaining their bottom lines, said Jayson Amandus, vice president of indirect lending at BECU.
"When we have conversations with dealerships, my sales team, they specifically talk about cash-flow management," Amandus said. "Cash flow is super important for any business. It doesn't matter what you do. The quicker you can get your money, the easier you can turn it around."
BECU offers its dealer partners same-day payments through a modification of the National Automated Clearing House Association file so long as the contracts are received and approved before 12 p.m. Pacific Time. Contracts received later in the day are funded the next day.
The Tukwila, Washington-based credit union is also working on launching its own real-time payment capabilities amid overhauls in its company-wide loan origination system and banking core, a project that is likely to take years, Amandus said.
"We changed the NACHA file and realized that we can get almost everybody their money [on the] same day. That next step is real-time payments," Amandus said. "We just feel like everybody's going to have to do it at some point."
Smaller dealerships also need to contend with cash-flow management, which prompted subprime auto lender Credit Acceptance Corp. to partner with Citizens Financial Group to offer RTP to its dealers.
"Many of our dealers are small business owners," said Andrew Rostami, chief product and marketing officer of Southfield, Michigan-based Credit Acceptance Corp. "Therefore, just like any entrepreneur, getting their money fast is critical so that they can run the day-to-day needs of their dealership."
ACH transfers can take one to two business days, with processing limited to Monday through Friday. "In our case, that means if a dealer has sold a car and they're waiting for funding, and they did that on a Friday, that might not be completed until Monday or even Tuesday, potentially," Rostami said. "As a result, dealers might not have access to funds over the weekends or important holidays when they're really doing a significant amount of business."
CACC saw real-time payments as an opportunity to further invest in the funding experience as part of its dealer relationship management strategy. More than 1,500 active dealers are using the RTP service, which allows for payments up to six times per day, Rostami said.
More than 25,000 new-vehicle contracts have been funded through the platform. In October, RTP represented about 9% of total payments to dealers.
"Funding is an area where dealers really care about speed," Rostami said. "They can use that to purchase inventory that's available at the moment to further invest in their business, or obviously make their day-to-day overhead needs."
Reaching a wide market
Origence and Catalyst are starting their instant payment journey with Tesla, but the system could extend to the entire auto industry.
"The system will stay the same. We could launch it if the need arises to our entire dealer network," Origence's Bhagat said. Origence has business relationships with more than 1,100 credit unions and 20,000 auto dealerships in the U.S.
Other corporate credit unions are also prioritizing instant payments for auto dealers. Corporate One Federal Credit Union built a "send" solution on The Clearing House's RTP network that allows credit unions to pay their accounts payable, including auto dealers and title companies, Melissa Ashley, president and CEO, said at the
"It's basically a replacement for a wire solution, but it's more economical, and obviously they get the benefit of immediate payment," she said.
Wider adoption in the automotive industry represents a massive potential volume for instant payments.
For example, 49,084 new cars were sold per day on average in October, according to TD Bank. Those vehicles held an average transaction price of $48,623, according to Kelly Blue Book. And 80% of new-car sales are financed, according to the National Automobile Dealers Association.
Altogether, that represents more than $1.9 billion of transactions that are flowing through the automotive industry per day.
By comparison, the RTP network logged a record 31.7 million transactions valued at $25.5 billion in October, according to The Clearing House. FedNow tallied 336,487 transactions valued at
What's the holdup?
The automotive industry and instant payments may be a great match on paper, but widespread deployment represents challenges for both lenders and dealers.
"The Tesla scenario is very clean because it's going to a single institution," Catalyst's Ganey said. "You're not going to snap your fingers and all of a sudden all dealerships across the country [will be live]. It's that many dealerships, across that many financial institutions and the timing in which dealerships ask for it or demand it and if they work with financial institutions that are live on FedNow."
There are nearly 17,000 franchised dealerships in the U.S., according to the National Automobile Dealer's Association. And there are between 27,000 and 30,000 independent dealerships in the U.S., according to Mercer Capital.
There's also a chicken-or-egg dilemma, said Bruce Newmark, president of consultancy firm Fimanco. Newmark has spent more than 45 years in automotive retail and finance.
"I think the dealer body is going to drive [adoption] over time, " Newmark said, but noted "the lenders have to get on board before the dealers can get on board. I think they have a lot of work to do to conform their internal technologies with the capacity to do that."
For example, auto lenders in the last few years just moved from paper contracting to electronic contracting due to the COVID-19 pandemic, the latter of which is necessary to even begin talking about instant payments, he said.
"Lenders use the funding mechanism as a control point because once you've issued the payment, you're done," Newmark said. "You have to do your due diligence on the deal — verification, all that stuff — before you can fund the deal."
And while many auto lenders today have leveraged artificial intelligence and machine learning to help speed up the approval process, speeding up payments is a different challenge.
BECU, which is in the "very early" process of creating its own RTP solution, is building functionality to support instant payments, said Andrew Whittenberg, senior manager of indirect lending.
For example, the credit union would need to update and maintain routing and account numbers for every dealer and would need an operating agreement to deposit to them directly. It would also need to develop the ability for the loan origination system to fund directly through RTP or FedNow, Wittenberg said.
Dealerships also aren't "jumping up and down" asking for instant payment capabilities from their lending partners en masse, BECU's Amandus said, which he expects causes it to be deprioritized.
Auto dealerships are historically slow to adopt new technology, Fimanco's Newmark said. Eventually, dealers will start asking for it, forcing more lenders to adopt it.
"A lender that pays faster is going to get a deal, even if it's not as favorable to the dealer as a lender that pays with a check or pays through NACHA or something, because it's so fast and so assured," Newmark said.
Credit Acceptance Corp.'s Rostami believes that instant payments in auto will expand as the benefits becomes apparent.
"For real-time payments, or any payment or other capability to be beneficial for a lender to offer or for a dealer to ask for it, in my experience, they ask for the broader value prop rather than the specific feature," Rostami said. "As a standalone capability, it's absolutely nice to have. But when you combine it with excellence and uniqueness across the service model… that's what we've seen dealers ask for. That's the model they want in aggregate."
For now, Origence and Catalyst are betting their integration with FedNow will provide a competitive advantage for their credit union partners.
"However, in a year or two years in time, this could become table stakes," Origence's Bhagat said. "The intent should be that you cannot ignore it. You have to acknowledge and accept that this is where the world is changing."
