Unraveling confusion around LPR

Unraveling the Confusion Around License Plate Recognition (LPR)

Over the past several years, the use of License Plate Recognition (LPR) technology has emerged as a driving force in the repossession industry.  It has become an indispensable tool to lenders, forwarders and agents in the quest for improved recovery rates.

 

At the same time, the LPR industry has gone through massive change.  The consolidation of multiple LPR providers and the evolution of how and when the tool is deployed has created complexities, confusion and, in many cases, unintended consequences.  We have found that, in our discussions with lenders, many really do not have a clear understanding of how these changes are impacting their partners and overall results.  This article is intended to shed light on these issues.

 

Evolution of the Industry

Over the past 5 years, the LPR industry has seen significant consolidation.  Digital Recognition Network’s (DRN) acquisition of both MVTrac and Plate Locate have put it in a dominant position in the industry.  We estimate that DRN’s current share of LPR assisted recoveries is in excess of 90%.  However, this reality is somewhat blurred because both the DRN and MVTrac brands have been maintained.  In our discussion with several lenders, it was revealed that many continue to operate under the belief that the two are still separate competing providers.  They do not realize that networks and technology has been consolidated into one platform.  The significance of this will be explained shortly.

 

LPR and the Forwarder Model

Another key area that we have found that lenders don’t fully understand/appreciate is the significance of the use of LPR technology on the Forwarder business model.  Most Forwarders will place new assignments into the LPR system on day one, regardless of the stage of delinquency of the assignment and, on average, the LPR assisted recoveries account for approx. 22%-25% of the Forwarder’s total recoveries.

 

Very importantly, there is no additional labor expense associated with these recoveries.  This allows the Forwarder to allocate more labor (skip tracers) and other resources to the non-LPR recoveries which helps lift the overall recovery rates.  This dynamic is a key variable in the Forwarder’s overall financial model.  The ability to rely on LPR recoveries is also a key assumption used to determine the fee per repo that the forwarder needs to charge the lender in order to earn a reasonable margin.  If the use of LPR is removed or materially reduced, the original pricing assumptions are no longer valid.  To be specific, removing the use of LPR from the Forwarder’s arsenal reduces its gross profit margin by approx. 25%.  This is obviously a very large impact that cannot be indefinitely absorbed.

 

As detailed in the next section, there has been a trend developing over the past couple of years that has had this exact impact on Forwarders.

 

Lender Changes

Over the past couple of years, we have seen lenders move to one of three possible strategies when it comes to ensuring that their repossession assignments take full advantage of the LPR technology.

 

  • Forwarder Reliance – In this scenario, the lender relies on the forwarder to make full use of the technology. These lenders typically scorecard vendor performance and allocate market share based on that performance.  This gives the Forwarder a lot of incentive to use the technology aggressively.  Also, in this scenario, both lender and Forwarder get the benefit of LPR and the assumptions in the pricing analysis remain valid.

 

  • Lender Chooses An Exclusive LPR Provider – In this scenario, the lender selects a provider to be its exclusive provider of LPR assisted recoveries and communicates such to DRN. In this situation, both the Forwarder and the LPR vendor place cases in the system but all live hits are passed directly to the LPR vendor.  The Forwarder loses virtually all benefits of the live LPR system.  Given that the Forwarder was likely already putting the assignments into the LPR system, the lender does not really get an additional recovery benefit from this strategy, assuming that forwarder has similar scan density of the designated LPR provider (most do).

 

  • Lender Choses a Non Exclusive LPR Provider– This is perhaps the most confusing and least understood of all scenarios. In this case, the lender is giving cases to both, its Forwarding partner(s) and another provider that is only authorized for LPR assisted recoveries. This is called staging or shadowing. We have found many lenders that take this route are under the impression that they are getting the benefit of competing networks and that whoever finds the car first will get the recovery.  This is actually NOT the case.

 

With few exceptions, there is just one agent network supporting all of the LPR activity and, as a result of DRN’s ownership of the network, they are able to decide whether the Forwarder or the LPR vendor gets the recovery.  This “allocation power” is resulting in between 80%-100% of live LPR recoveries being allocated to MVTrack.  They are well within their rights to do this but it is important for the lender to understand the overall impact.

 

Both scenarios (2) and (3) above result in the Forwarder losing all or substantially all of its ability to deploy the live LPR system on its cases.  As mentioned earlier in this article, this results in an unsustainable reduction in Forwarder margins that will have to be addressed.  Ultimately, there are only two solutions: (1) the lender reverts back to Scenario I above whereby they, and their Forwarding partners, get the benefit of LPR or (2) the Forwarder raises rates on the non LPR recoveries to compensate for the change.

 

Hopefully, this helps clear up some of the confusion on the subject.  If you would like to discuss it further, please contact Jose Mendiola at jose.mendiola@resolvion.com.