Automotive Lenders Pivot Toward Embedded Finance Models to Enhance Customer Experience

MUMBAI: Automotive financiers are prioritizing innovation, shifting their focus from standard EMI products toward embedded finance and strategic partnerships. This move aligns with global trends where integrated digital credit is provided directly at the point of sale.

While approximately 80% of new car purchases are financed, transactions are often fragmented, with dealers calculating sales based on on-road prices while financing remains a separate process. Speaking at the Federation of Automobile Dealers Association (Fada) 5th Finance and Insurance Summit in Mumbai, Rajan Pental, Executive Director at Yes Bank, emphasized the necessity of creating a seamless purchasing experience.

“While the industry has traditionally provided auto loans as installment products, we have yet to successfully develop a fully embedded product,” Pental noted. He observed that modern customers enter showrooms with comprehensive knowledge of vehicle specifications, yet the variety of available lenders often delays the final transaction.

In advanced markets, lenders and Original Equipment Manufacturer (OEM) captives frequently offer fully digital, embedded credit through dealerships or online configurators. These systems offer instant decisions, electronic signatures, and funding that is directly linked to the vehicle order. In contrast, India’s auto finance sector remains largely reliant on traditional loan models, with leasing accounting for roughly 1.5% and subscription services for only 0.1% of the market. Pental encouraged the industry to move beyond ex-showroom pricing to offer localized schemes tailored to specific regions.

Raul Rebello, MD and CEO of Mahindra Finance, remarked that the industry has achieved significant scale and noted that the sales gap between rural and urban areas is narrowing.

C S Vigneshwar, President of Fada, described finance and insurance as the “load-bearing walls” essential to the viability of auto dealerships. He noted that for wholesale finance, dealers require more transparent, demand-driven funding and faster implementation of interest rate reductions. Regarding retail finance, he highlighted the need for more robust funding solutions for used vehicles and more efficient reconciliation processes.

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