TD Auto Finance to fund deals quickly with 'real-time payments'

TD Auto Finance says it will be the first lender to fund auto loans arranged by its dealership partners with "real-time payments" hourly rather than the traditional, slower electronic disbursements available now.

TD Auto began testing the faster payments last fall with six dealerships and has expanded the pilot to more than 100, according to CEO Andrew Stuart.

"We're ramping up very quickly," he said.

Stuart estimated about 65 percent of the bank's 6,300 partner dealerships are eligible for the payments over the Clearing House's RTP network. He said TD Auto Finance planned to spend the rest of 2022 extending the capability to about 1,300 major dealership accounts, such as public dealership groups, and then move on to the remaining eligible retailers in 2023.

When TD Auto buys a loan off the dealership through the traditional electronic Automated Clearing House Network, the payment is sent overnight, according to the bank. The new system sends dealerships proceeds hourly.

"It's been great," said Paula Minichino, comptroller for Branford, Conn.-based Branhaven Chrysler-Dodge-Jeep-Ram, one of the dealerships participating in the pilot.

When the real-time payments are combined with the dealership's e-contracting practice, it's possible for Branhaven to have been paid by TD Auto before the borrower even leaves the dealership in their new vehicle, she said.

In theory, Branhaven could turn around and buy a replacement vehicle immediately, Minichino said.

The TD Auto Finance real-time payments aren't available over the weekend, though this could eventually be the case, according to Stuart. If so, this would also be an advantage over ACH, which follows banking hours and holidays.

Right now, the real-time payments run from 7 a.m. to 7:30 p.m. ET Monday through Friday, and any weekend deals would see funding transmitted in the first real-time payment push on Monday instead of in the overnight ACH batch that arrives Tuesday.

TD Auto Finance has speculated the incentive of real-time payments would induce dealerships to send it enough additional loans for a 2 percent bump in the company's indirect auto business, according to Stuart, though he cautioned it was too early to draw conclusions on the pilot's performance to date.

However, he said the feedback from dealerships so far has been positive and noted most of the good dealers he knew paid attention to their cash flow.

"Our goal with real-time payments is to make life easier for dealers by eliminating the need to wait for payments overnight and giving them maximum confidence in their cash position and ability to operate their business," Stuart said in a statement.

Minichino couldn't speak to whether it was sending TD Auto Finance more deals because of the bank's speedier payments. But she said if cash flow were a greater issue for the retailer — she noted 15 years ago it had been — the real-time payments would be a reason to give TD Auto Finance indirect auto business.

Minichino said the fast payments also ease month-end accounting.

"You're not waiting [on money]," Minichino said.

When a deal sits on the books at the end of the month awaiting payment from an indirect lender, "it's a red flag for accounting," she said.

TD Auto's announcement came about a week after U.S. Bank announced it had enabled Lithia Motors Inc. to instantly pay customers selling cars to the group on the Driveway digital retail platform. U.S. Bank said it also was working on instant payments related to dealerships ordering inventory from automakers.

Asked about such applications, Stuart said he wasn't a payments expert but agreed other opportunities existed.

"I think we're kind of just scratching the surface of what the possibilities could be with real-time payments," he said.