Focusing on

Customer
Outcomes
THROUGH SERVITIZATION

Research by In association with

© Asset Finance International, 2019 All rights reserved.
FOREWORD
Servitization is a phrase not yet well recognized in the asset finance
industry; however, it will quickly become better known as auto and
equipment finance providers begin to focus on pay-per-use and
pay-by-outcome models such as pay-per-mile, power-by-the-hour
and— in the case of robots on a production line— pay-per-pick.
There can be little doubt that customers are increasingly attracted
by the prospect of paying to use, rather than paying to own,
certain assets. Correctly formulated service-based models of
finance are much more likely to meet their needs. They also
offer exciting opportunities for our industry to grow new revenue
streams and profit.
On the other hand, the transition to services also brings significant
complexity for pioneers, who will need to acquire new skills and
learn to manage new types of risk. The return for those who
acquire those skills quickly promises to be great.
At White Clarke Group, we welcome the opportunity to support
this exciting research project, which we hope will help the industry
to both better understand the landscape of servitization and to
benefit from it.
It has been a pleasure to work with Aston University on this
project. I would also like to thank the many individuals and
companies that have so generously given their time to support
the production of this report.
We are at the start of the servitization journey and, as you
will read from the last page of the report, we have identified a
number of pathways for additional related research to deepen our
understanding of the impact, issues and opportunities afforded to
us all by servitization.
We therefore plan to invest in further research on servitization in
the coming months so that we can help you prepare your business
plans for the changes that lie ahead.
With my best wishes,
Brendan Gleeson
CEO
White Clarke Group

As with many of the changes affecting the industry at present,

we recognize that technology lies at the heart of servitization.
This is why it has been vitally important for us to be involved
from the outset.

We thank the many finance companies who have already become

involved in this ongoing study. We also hope, for those of you who
have not yet contributed, that you too will join us in participating in
the follow-on research.

© Asset Finance International, 2019 All rights reserved.

Participants in the research study
• George Ashworth, CEO, Santander Asset Finance
• Christian Bernhard, General Manager Europe,
GE Healthcare
• David Betteley, Advisor, Asset Finance International
• Mark Butters, General Manager, Omron Electronics
• Egbert de Jong, Strategy & Product Development &
Asset Management at DLL
• Thies Engering, Managing Director, Cargobull Finance
Holding B.V
• Nick Feasey, Funding & Strategy Director, Lenovo
Financial Services & “As a Service”
• Brendan Gleeson, CEO, White Clarke Group
• Adam Goldhagen, CEO, PSA Finance UK Limited
• Mike Hulme, Honorary Professor, Aston Business School.
• Peter Hunt, Managing Director, Growcap
• Paul Jennings, CEO, JCB Finance
• Fernando Martin, Director Customer Finance, Global
Markets, EMEIA & APAC, Varian Medical Systems
• Mark McLoughlin, Strategic Account Manager (Energy
Finance), Siemens Financial Services
• Ylva Oertengren, COO, Simply
• John Rees, Global Head of Sales & Marketing, SGEF
• Alan Rhodes, Managing Director, Scania Financial Services
• Bob Rinalidi, President at Bob Rinaldi, LLC Advisory
Services (formerly CEO, Commercial Industrial Finance,
Inc and Chairman of ELFA)
• Ian Robertson, Partner, Invigors EMEA
• Julian Rose, Director, Asset Finance Policy Ltd.
• Maria Rita Rolfi-Rittgers, EMEA HP Relationship,
HPE Financial Services
• Hendrik Roosna, CEO, Fairown
• Richard Ryan, Partner, Invigors EMEA
• Adrian Samaraneau, Chief Digital Officer,
Volvo Financial Services
• Greg Sarson, Head of Asset Management,
Xerox Financial Services Europe
• Brit Schonenberger, formerly CEO (Switzerland), Leaseplan
• Lee Thompson, DLL Pay-Per-Use Solutions,
EMEA Lead, DLL
• Graham Wheeler, Chief Executive, GW Executive
Consulting (formerly CEO, Volkswagen Financial Services)

Advanced Services Group (ASG) is a centre of excellence at

Aston Business School, Aston University in the UK. They provide
education, training, research and a global network of like-minded
Invigors, part of the Alta Group, provides a comprehensive range of consultancy
professionals around advanced services and servitization. We help services to the asset finance industry across Europe, the Middle East and Africa.
global manufacturers and technology innovators to develop These include corporate restructuring, strategic marketing and research, M&A, asset
services-led strategies. and lifecycle management, funding, tax, regulatory and accounting services, business
transformation together with captive and vendor finance. The consultancy comprises
highly experienced senior executives with many years of practical experience who are
David Betteley has a wealth of experience in Automotive Financing
DAVID recognised as leading experts across the industry.
Services, most recently as Global Financial Services Director at Jaguar
BETTELEY
Land Rover from January 2010 to 2017 and previous roles as Senior
VP Toyota FS and MD Vauxhall Finance. He took early retirement from
JLR in July 2017 and now works in independent consultancy.

White Clarke Group is well established as a world leading provider
of end-to-end automotive, consumer and equipment finance software.
They deliver first-class software to more than 100 captives, banks
and independent finance organizations in 30 countries. For more
information, please visit www.whiteclarkegroup.com
International Asset Finance Network (IAFN) was established in 2013 to allow senior
executives in retail auto, fleet and equipment finance organizations to meet to consider
how technology, changing customer expectations and regulation are transforming the
asset finance industry.
The network has grown steadily to become the largest asset finance events in Europe.
IAFN conferences are backed by industry research delivering a unique perspective on
digitalisation, and the emergence of a new digital asset finance ecosystem.

© Asset Finance International, 2019 All rights reserved.

EXECUTIVE SUMMARY
Servitization is a conscious strategy to merge manufacturing and integrated
services offerings to provide value-driven outcomes that are scalable and resilient.
Technology is driving, and enabling, radical changes in consumer behaviour,
leading to a major shift in consumption patterns across a range of market
sectors. The switch from ownership to usership has, until now, been most
marked among the younger cohort of consumers, for whom on-demand
streaming via Netflix has replaced the traditional approach of buying a DVD.
However, as mobile and always connected digital technologies become standard
channels between consumers and the companies aspiring to sell to them, so
this trend is gaining traction. The focus is starting to shift, with the line between
products and services blurring and an eventual move towards concentrating on the
outcome the customer is seeking, not the means by which they reach that goal.
The move towards advanced services requires organizations to explore new
business models, and has implications for captives, manufacturers, banks,
independent financiers, and software solution providers.
Developing a servitization strategy, implementing the right organizational culture
to deliver digitized benefits to customers, changing the corporate structure,
and finding ways to re-market and re-deploy assets effectively to maintain and
enhance residual values and retain customers through continued usage rather
than re-purchase are all critical challenges.
Building on the findings from in-depth research by ASG, this white paper looks
at what underpins the new drive towards servitization, how organizations should
respond, and the next steps to take.

Three levels of servitization

PRODUCTS OUTCOMES

Base services Intermediate services Advanced services

Customer gains access to the equipment Customer gets access to the equipment and Emphasis shifts from the equipment
reassurance that equipment is maintained itself to meeting the desired outcome
Condition monitoring and repair (telematics) Enabled by Internet of Things (IOT)

TECHNOLOGY ENABLED

© Asset Finance International, 2019 All rights reserved.

INTRODUCTION TO SERVITIZATION
Using in-depth interviews and a Delphi Day at Aston Business School we
explored the question: “How is servitization impacting the Asset Finance
Industry?” A total of twenty-seven industry experts contributed to the study
and a number of hypotheses were tested as part of the research.
The Delphi method is a systematic and interactive research
technique for obtaining the judgment of a panel of independent
experts on a specific topic. Developed in the 1950s at the Rand
Corporation, the technique seeks to reach consensus among
participants about a complex topic through a survey consisting
of a series of rounds of discussions and debate.
Five key findings emerged:
1 Respondents are seeing evidence of increased interest in and demand
for services and outcomes as opposed to the purchasing of assets.
This has the potential to disrupt the asset finance industry in a number
of ways.
2 This disruption represents an opportunity for firms to gain a first mover
advantage if they are willing to be flexible, innovative and adopt new
business models.
3 The ability to price and manage new types of risk will be a key capability
in this area.
4 Servitization provides opportunities for businesses to demonstrate their
increased focus on environmental and sustainability concerns and the
promotion of the circular economy.
5 Collaboration not competition. A partnership approach with different
entities working in an ecosystem will be the most likely model to succeed
in many sectors
A circular economy is an alternative to a traditional linear
economy (make, use, dispose) in which we keep resources in use
for as long as possible, extract the maximum value from them
whilst in use, then recover and regenerate products and materials
at the end of each service life.
Hypotheses
1. The focus of manufacturer captives will shift, wholly or in part, away from
the provision of finance and towards sales, customer loyalty, new models
of asset usage and the provision of services.
i. Manufacturers will seek to reduce their exposure to capital
requirements, ongoing funding and bank regulation.
2. Banks will be unwilling to compete as full service operators and will
concentrate instead on their core business of providing funding and
managing credit risk.
i. Due to their detailed knowledge of the asset, specialist skills and
experience combined with close customer relationships developed
over a long time, along with a different risk appetite to most banks,
captives have distinct advantages to develop advanced services.
3. Independent financiers will focus on creating seamless customer
journeys, for example managing the online to offline customer journey,
or as hybrid funders offering a range of finance services to meet all
the needs of specific customer types. Independent financiers can also
emphasize a multi-brand and best in class state of need as opposed to
state of the art focused approach.
4. The traditional full-service software solution market designed for
exclusive use by one financier is ripe for disruption. The single end to
end service providers will be replaced by multiple tech companies each
offering a narrow range of specialisms including the provision of
customer-centric rather than asset-centric services.
© Asset Finance International, 2019 All rights reserved.
DRIVERS FOR CHANGE
Shift to focus on outcomes This transition from a product-based to an outcome-based business model
follows a process of increasing sophistication starting with product and spares,
moving through product maintenance and assurance through to the delivery of
product outcomes, business processes and ultimately platform capability.
PAY
BY USE/
PAY FOR
OUTCOME

OUTCOMES
BLURRING

PRODUCTS &
PRODUCTS SERVICES &

SERVICE
OUTCOMES
& SERVICE PRODUCTS

PRODUCTS SERVICES OUTCOMES

PRODUCT
“ ”
INCREASING CUSTOMER INTEGRATION/TECHNOLOGY AND ORGANISATION STRETCH
Focus on outcomes: I don’t need a digger, I need a hole.
(Source: Captive)
Used with kind permission of the Advanced Services Group

Many manufacturers are recognising that a focus on product led strategies alone
New business models will exploit digital technologies and the design authority
risks missing out on the opportunity for much greater growth through services.
of the manufacturer and can lead to benefits such as locking out competitors,
Moreover the nature of services is evolving.
delivering sustainable revenue streams and stimulating growth.
While manufacturers have traditionally derived income through services such
The move towards advanced services provision requires businesses to explore
as spare parts, repair and overhaul, businesses and consumers now seek
new enterprise models. We believe that businesses need to consider three key
increasingly to buy outcomes. Rather than ‘buying an engine’, for example,
elements in their go-to-market model to deliver advanced services.
customers want to buy ‘thrust’, rather than ‘buying a car’ they want mobility’
and rather than ‘buying insurance’ they want ‘reassurance’.

© Asset Finance International, 2019 All rights reserved.

 i. Changing customer
expectations
Servitization models are becoming
increasingly common across a diverse range
of industries, partly inspired and enabled by
new technologies which are facilitating new
business models and service provision.
Additionally and importantly B2B customers
have growing expectations based upon their
own consumer experiences
in the B2C world.
Business customers needs are seen to be
moving increasingly towards :
• Usage not ownership
• Flexibility
• Value for money
• Simplicity and a one-stop shop
• Transparency
• Societal and brand benefits
(e.g. circular economy participation)
• Security and compliance, peace of mind
and focus on core business activities
• A seamless omni-channel
(ie on-line to off-line) experience
ii. Drivers for manufacturers
“
”
How do we give the corporate customer who wants asset finance, whether it’s bundled
or otherwise, that same experience where it is so simple it’s like ordering off Amazon.
(Source: Captive – Copiers and Document Management Services)
OEMs are responding to growing customer demands and competitor offerings by adapting their
offerings to protect, maintain and ideally grow their market positions.
Different markets and OEMs are experiencing different challenges and demands, so the speed of
migration and adoption of such models varies significantly.
Generally manufacturers are motivated by
• Desire for greater and more consistent sources of revenue and profits from increasingly diverse
sources beyond pure hardware margins
• Ambition to match customer demands and provide excellent customer experiences
For more proactive players, there is a deeper strategic understanding of opportunities to:
• Increase services penetration
• Drive increased customer retention
• Drive upgrades and protect and enhance margins
• Better understand and predict customer needs
• Have greater control over equipment flows and secondary markets
• Exploit circular economy trends and second and third life equipment
On the downside, OEM’s need to work harder to retain customers as the “omni-channel” offering
facilitates switching, plus modern customers are more brand promiscuous
Organizations developing a servitization strategy need to understand the consumers’ desire for solutions
and approaches that proactively solve their needs. That is leading to more operating leases, and a greater
need for equipment control and installed base management, as well as a trend toward deeper relationship
management with equipment customers.
© Asset Finance International, 2019 All rights reserved.
 iii. Increased focus on environmental issues End • Usage not ownership • Accounting treatment
and sustainability Customer • Total cost focus - • Transparency
Pull Factors meeting state of need • Compliance and peace
rather than state of the arts of mind
The “circular economy” is a powerful response to current environmental and • Bundled solutions and • Environmental
sustainability concerns, and along with the shared economy and advanced services considerations
• Flexibilities and simplicity
services models, is also a source of value creation.
of interaction
Pay per use models and outcome focused payments change the dynamics
of the trade cycle, potentially removing the trigger for replacement of an OEM Pull • Customer gets access • Revenue recognition
asset as it becomes older. For example replacing the asset at the end of a Factors to the equipment and • Product differentiation
leasing agreement. reassurance that equipment • Secondary market
is maintained management and circular
Manufacturers who are focused on these models may be expected to make • Condition monitoring and business models
products easier to repair and upgrade using modular design, rather than on repair (telematics)
replacement. This approach is being adopted in many industries including
high technology through to transportation. Lessor Pull • Emphasis shifts from the • Need to satisfy OEM
Factors equipment itself to meeting needs
They will continue to focus on and manage the secondary market for assets the desired outcome • Need to satisfy end

“
• Enabled by Internet of customer
the circular economy experts are promoting the move
Things (IOT) • Circular business models
from a linear economy to a circular economy which

”
and CSR
means make sure you keep a grip on whatever you
produce and that the utilisation is as optimal as possible
(Source: Bank)
Technology • Propensity of sensor, telemetry - “smart assets” and IOT
Related and potential impending 5G impact
Factors • Ability to consolidate and integrate disparate data sources
Another consequence of this is that the management of an asset
relating to the asset
throughout its whole life is becoming more of a focus. The management
• Micropayment capabilities along with more flexible
and maintenance of an asset and maintaining it in its optimum condition
billing solutions
are becoming key capabilities. The re-use or redeployment of equipment • Ability to disintermediate solution offerings and re-bundle
including remanufacturing as well as harvesting of assets at the end of their efficiently and cost effectively
lives means that more and more manufacturers are focusing on and offering • Self service customer and partner interfaces
life cycle asset management services.

Source: Ian Robertson, Invigors EMEA

© Asset Finance International, 2019 All rights reserved.

SERVITIZATION IN ACTION
Our research looked at how servitization is developing across different market sectors.
Healthcare
Macroeconomic trends across Europe, including
an aging population and increases in healthcare
costs which outstrip increases in GDP, are
driving hospitals to consider innovative models
to fund investment and service. Increasingly,
contracts will be configured on a pay per use
basis where, for example, a hospital will pay so
much per scan to the equipment provider.
“
We are also interested in exploring new
options for sustainable growth, and looking
for further expansion in adding additional
services and models, business models that
”
can provide value to our customers.
(Source: Captive – Healthcare).
Pay per use contracts require the manufacturer
to take on a new category of risk beyond the
financial and equipment risk, i.e. the usage risk.
“ I think that it is important to understand
the impact on us, probably 10 years later
than other industries. This industry is
going through change and there is a strong
push away from, let’s call this box shifting,
towards outcome based offerings where a
manufacturer has to provide value based
”
healthcare. (Source: Captive - Healthcare)
Automotive
Automotive captives are using digital capabilities
to develop new services to offer customers.
“ We find ourselves in a better position to
understand the needs and to connect to the
customer to explore different opportunities.
Digitalization gives you the opportunity to
unwrap new products and services that you
can’t really offer in a traditional way. Every
vehicle has about 9,000 sensors or so that
are collecting the information on driving
conditions, driver conditions, the conditions
of the truck, of the road, of many items. So
there is a stream of about seven to nine
gigabytes a second that is coming out of a
vehicle… it is information that you can use
to get a better understanding of different
”
customers’ requirements.
(Source: Captive – Automotive).
New models such as subscription services
are being developed to fill the perceived gap
in the market between car hire companies and
short term leases. This calls for an overhaul of
legacy systems and traditional approaches to
lease terms.
Rail
In the UK, rail contracts are let to train operating
companies, under competitive tendering
processes. It has become increasingly difficult
for such companies to make money, with the the
operator of last resort (OLR), a government arm
that takes over ailing rail routes, already running
the East Coast line, renationalised in 2018, and
looking closely at Northern Rail.
The long term nature of the rail contract, where
the asset may have a 30 year life, combined with
the pressure to keep costs down, have led to
innovation in the rail industry and the nature of
the contract with the customer.
Increasingly, the risk in these contracts
is becoming the responsibility of the
manufacturers:
“ And really over the last five or six years
then that risk has shifted in its entirety to the
manufacturer for new products. And I can’t
see it going back the other way, and I think
as this model becomes, and has become, the
common practice within the industry I find it
”
very difficult to see that changing.
(Source: Captive – Rail).
© Asset Finance International, 2019 All rights reserved.
 Rail (continued) Agricultural/ construction/
commercial vehicles
Moving towards an outcome based contract has seen one train manufacturer develop new capabilities
to keep asset availability high and maintenance costs low. The use of multiple sensors and a whole In agricultural products, particularly in markets
train scanning unit allows rapid diagnostic of issues, while predictive maintenance means key parts are like the US there is downward pressure on prices,
replaced before they fail. Customers expect the manufacturer to be using technology to detect problems combined with lack of growth. Manufacturers are
forced to look at other component services that
before they can escalate.
go far beyond standard supply of spare parts and
maintenance labour. These may include satellite-
based harvesting, smart fertilising or seeding.

IT, copiers and document management services

“ Agricultural machines are being steered
by data, and almost completely self-driven.
The farmer can be relaxing on his phone,
“As a service” models are now well established within the IT industry, whether device as a service doing nothing in the cabin.
”
“
(DAAS) or software as a service (SAAS), and firms are now developing additional service offerings for
the agricultural industry is, I think, an
their customers. IT businesses are exploring outcome based models with their customers. example where still there’s big room to grow
into servitization pay per use. What we see is

“ We look at first and foremost serving what they need to solve in terms of their technology
and business outcome solutions
”
(Source: Captive – PCs, Servers and IT Services)
quite basic. However, there are first signs of
manufacturers who are looking at introducing
some more advanced solutions to the
customer in this area.
” (Source: Bank)

© Asset Finance International, 2019 All rights reserved.

RISK MANAGEMENT
Overview
Julian Rose, Director,
Asset Finance Policy:
A ‘purer’ approach to servitization - without
minimum contractual quantities or periods
-continues to fit our high-level definition of
leasing. It’s less likely, however, to be caught as
a lease under accounting rules, simply because
there is no defined period of time for which
the equipment is used (although the detailed
accounting rules on ‘substitutability’ of assets
are full of contrived twists and turns).
It’s potentially good news if the lessee wants
to keep the contract off-balance sheet, noting
carefully this is not about ‘avoidance’, it’s
about trying to give investors and other users
of accounts more meaningful information.
It’s potentially bad news if lessors want to
recognize more revenue up-front, but that
usually has no real economic impact, instead it
just creates a need to adjust revenue targets to
allow for the different accounting approach.
Many lessors and OEM captives have a good
understanding of residual risks and have developed
strong asset management and remarketing
capabilities to enable them to offer customers
attractive pricing by crystallizing the benefits of
the future value of the equipment in their offers.
The servitization models introduce additional risks
which many non-specialized lessors may well
find challenging.
Financial Risk
OEMs operating in a current model of manufacturing
goods and selling them will have to transition into
a model of payment which pays over the lifetime of
the asset. This will generate a significant working
capital requirement and potentially an opportunity
for banks and specialist finance operations who
have an appetite to take on this opportunity.
Specific working capital requirement can be caused
by the inability to recognize revenue at the point
of sale as the manufacturer retains an interest in
the produced goods in the event of there being a
repurchase obligation at some point in the future.
Legal and Regulatory risk
If OEMs enter into financing arrangements, in
particular if they bundle certain services such
as insurance, they will potentially face increased
attention from regulators.
This is often a risk that OEMs are reluctant
to shoulder.
Contracts with customers need to be re-written –
especially considering the effects of the transition
on the trade cycle.
Operational risk
For pay per use solutions there is a risk relating to
the assessment of likely usage, not only in terms of
the period of use, but also in terms of the level of
usage along with the nature of that usage.
The risk return equation for these new risk types
looks markedly different for an OEM compared with
a generalist lessor. OEMs and their captive finance
companies have specialist knowledge and asset and
service related competences and resources as well
as privileged access to both current and historical
data, giving them a potentially important market
advantage compared to generalist lessors.
Manufacturers may also find it hard to retain
customer loyalty as customers take advantage
of the developing omni-channel approach being
adopted by most companies.
Partner Risk
There is a risk associated with integrating the
partners within the manufacturers systems.
Additionally the manufacturer will take on the risk of
the partners performance. In the event of a service
partner going out of business the manufacturer
will carry responsibility for finding a remedy or face
reputational risk.
 
© Asset Finance International, 2019 All rights reserved.
IMPACT ON THE AUTO AND EQUIPMENT
FINANCE INDUSTRY
This package of capabilities may become a source of competitive advantage
Manufacturers where a firm may offer the ability to set competitive residual values and to
recycle 95% of their customer’s assets providing the customer with significant

“
sustainability credentials they can use in their annual report
So again, from a competition point of view, there’s others looking at
servitization. Without a doubt, a serious player in our marketplace would be This can lead to additional added value services for clients where manufacturers
very foolish not to.
”
(Source: Manufacturer – Robots)

Those operating in competitively intense marketplaces where products are being

commoditised see the move to services as an opportunity to grow margin. In
can monetize the recycling and replacement of obsolete assets.

In addition OEMs and service providers are increasingly providing end customers
with solutions that mix both new and used equipment to provide optimized fleet
addition, manufacturers in mature markets seeking growth see the move towards management solutions and structures. This provides an outlet for second life
services as giving access to new ways to grow the business. equipment, extending effective asset lives and lowering overall carbon footprint

“ I would guess that 50% of our manufacturers are looking at some of production as well as reducing natural resource requirements.
sort of servitization or pay per use. It doesn’t mean that everybody has
implemented it already, but it’s certainly part of their strategic vision that
customers have
”
[Source: Bank]

Consumer purchasing power is playing its part, as companies such as Airbnb,

Uber, Just Eat, Deliveroo, and Spotify have pioneered new models which provide
quick access to products and services in a simplified way. These services are
affecting the expectations of consumers as they buy other more traditional types
of assets and services.
A good example of leadership in this area is Philips CEO Frans Van Houten who
has set the company on this course of action to increase financial attractiveness
and resource efficiency.
This commitment to life-cycle asset management typically results in higher
residual values for assets at the end of the lease term and this benefit can be
directly monetized or alternatively be shared with the end customers in terms of
lower costs of usage.
In the photocopier industry, significant effort has been made through R&D
and product design to make products easier to replace and refurbish by using
modular design approaches and this approach is being adopted in many other
industries from high technology through to transportation.
Captives
The focus for manufacturer captives may shift, wholly or in part, away from the
provision of finance and towards sales, customer loyalty, new models of asset
usage and the provision of services. An example of this is shown by Daimler
Financial Services rebranding itself as Daimler Mobility.
Manufacturers with manufacturer captives may seek to reduce their exposure
to capital requirements, ongoing funding and bank regulation, although in some
sectors manufacturers may be willing to invest capital if the area is considered
strategic to the business.
Advanced services requires a movement from a “servicing centric” to a “customer
centric” approach, getting closer to the customer and really understanding their
business and desired business outcomes. With high value assets, this may
require co-located facilities where manufacturers work alongside their customers
and innovate new value propositions.

© Asset Finance International, 2019 All rights reserved.

Captive finance providers are well placed to exploit the opportunities presented
by servitization. They have many strengths which they can leverage to deliver
these new services including, long term customer relationships, detailed
knowledge of the industry and the assets, and with the OEM, access to
customer and asset data.
“ So where a bank may struggle would be on understanding the
customer’s business. Obviously we’re in the print business and we might
have had a relationship with a customer for 20, 30 years. We understand
the intricacies of the print business, we understand the ebbs and flow of
the contract tenders and so forth.
”
(Source: Captive - Copiers and Document Management Services)
However, connected technologies are enabling manufacturers to have a direct
relationship with customer unlike any they have ever enjoyed before. For
intermediaries -including captives – this may prove a challenge. Moving into this
area may also put the OEM into competition with its own distribution channel
network which in some cases are already delivering services into customers.
Banks
Banks may be unwilling to compete as full service operators, and may instead
concentrate instead on their core business of providing funding and managing
credit risk. The financial crisis brought an increased focus on risk management
and capital adequacy on banks’ balance sheets.
Banks are familiar with financial risk, and in the context of leasing, have come to
understand equipment risk.
In the “pay per use” world, they are now having to develop an understanding of
usage risk and performance risk. In addition to the change in the nature of risk
in these contracts there is the question of who will own the new types of risk in
the future.
It will be difficult for banks to manage and quantify such risks in their current
processes and risk management committees.
“
Inside a bank where there are thousands of credit committees that
take risk on balance sheets of companies and cash flows of companies,
it’s difficult to find someone that’s prepared to take a risk on how many
”
patients are going to walk into a hospital and ask for a scan. (Source: Bank).
This traditional outlook and functional silo structure may limit the flexibility and
innovation required for banks to successfully support manufacturers in the
transition to advanced services.
On the other hand, banks may have certain advantages over captives because
they have large balance sheets and rigorous risk management capabilities.
Banks may also have better credit ratings and access to lower costs of funds
that can be leveraged by the manufacturer. Additionally banks may have systems
spare capacity that the OEMs can also take advantage of at a competitive cost.
Advanced services require more detailed knowledge and understanding of assets.
Amongst other things there is a requirement to understand residual values,
economic life, the secondary market, and whether assets are realizable and liquid.
One approach banks take is to enter into joint ventures with captives or
manufacturers in order to combine asset knowledge with banking capabilities.
“ Having a joint venture with a manufacturer means we get all of their
equipment knowledge, all of their knowledge of what’s happening in their
industry and where technology is going in their industry, combined with
all of the underwriting skills, the administration skills and perhaps the
selling skills of a bank and to put them together in a joint venture and you
capitalise on both party’s skill sets.
” (Source Bank).
Examples of this include Santander’s Joint Ventures with Mazda, Volvo,
Hyundai Capital and PSA Finance and Société Générale’s joint venture with
Philips. Black Horse with JLR.
Banks can also enter into alternative arrangements with OEM partners where
the roles and risks can also be defined and shared without entering formal
joint venture partnerships. Such cooperation agreements are commonplace in
the management of asset and credit risks, and advanced players are already
addressing the newer risks associated with servitization models. It is worth
noting that for banks to focus on such areas requires there to be scale and also
requires a financially strong counterparty. These two factors can be seen as
limiting banking appetite to engage with many smaller OEMs.
In April 2019 De Lage Landen (subsidiary of Rabobank) announced the launch
of the Direct Solutions Global Business Unit (GBU) to develop the organization’s
approach to consumption based or pay per use solutions, demonstrating
their belief that this trend towards servitization is growing and represents a
significant opportunity.
© Asset Finance International, 2019 All rights reserved.
Some banks have formed specialist divisions with sector expertise e.g. Rabo
Bank have DLL, Lloyds have Black Horse, Societe Generale have SG Equipment Fintechs
FInance, PEMA and ALD Automotive, BNP Paribas have Arval and BNP Paribas
Leasing Solutions.
Servitization presents an opportunity to develop an offering that cannot be
Those banks through their specialist divisions are certainly interested in commoditized. The customer journey, including the selection of products
becoming full service operators. and services and their configuration, is a key part of the delivery of value to
These banks may develop their own in-house systems or partner with Fintechs the customer.
to do so. Some banks may be limited in the type of partners they take on and
Companies like Amazon use technology to deliver bundled solutions which are
the products they sell. For example, Black Horse do not offer any “bundled”
products following the PPI mis-selling scandal. experienced as seamless by the user but are very complex in the background.
Independent financiers may be able to deliver parts of the customer journey,
act as an aggregator platform, or perhaps in some industries they may become
strong enough to deliver all the services and have exclusivity.
Independent financiers
Finance providers will require access to strong and flexible systems that
can access the relevant equipment data and measurements and to be able
Independent financiers are focusing on creating seamless customer journeys,
to combine this with flexible asset level billing. For all but the largest of
for example managing the online to offline customer journey, or as hybrid types.
independents, (who may have the technology competences within their own
Large OEMs are developing innovative new business models for servitization, organization), this potentially creates a market opportunity for fintech providers
often working with their captive finance providers. However, there are many or for outsourcing players who might partner with the other independent lessors
areas with smaller organizations (SMEs for example) where access to finance to to address these needs.
support servitization is less available. These offer opportunities for independent
financiers to provide customer focused innovative solutions, and new companies
are entering the marketplace with the specific aim of targeting this opportunity.
The democratisation of data, coupled with the need for agility and new
Technology Implications
organizational models all support such a move.

“
The traditional full service software solution market designed for funders offering
If they don’t come from a manufacturer captive heritage then it’s going a range of finance services to meet all the needs of specific customer with
to be a very differently shaped organization with a very different outlook,
exclusive use by one financier is ripe for disruption.
a very different way of doing things, very different core competencies
than what would have historically been the case for a non-captive finance

”
company. (Source: Independent Financier)
The single end-to-end service providers are at risk of being replaced by multiple
tech companies each offering a narrow range of specialisms including the
For the SME market in particular, financiers will need to develop knowledge of provision of customer-centric rather than asset-centric services.
the industry and assets:

“ The SME market requires deep knowledge of the asset type and then a
“ Micro-services means too many services, means too many problems.
”
”
Source: Delphi day participant
willingness to learn and become expert in the SME’s business area.
(Source: Independent Financier)

© Asset Finance International, 2019 All rights reserved.

 Next steps for research
“ While there are many excellent fintechs with enhanced service
capabilities, more partners adds complexity, risk and cost. Finance
providers need to be aware of the increased performance risks of working
Financial impact of servitization – further work
with partners who are smaller and less financially secure than many tier

”
is required to understand the impact on working
one solutions providers [Source: End to End Technology Provider]
capital requirements; and revenue recognition
Traditional financial organizations may be constrained by legacy systems,
regulatory concerns and internal inertia and resistance to change. These
organizations must consider whether to develop new capabilities themselves, Legal and regulatory impact – understanding
or in partnership with smaller, more agile providers. taxation, establishing contracts for partners
and customers
This gap provides an opportunity for nimble fintech firms to provide new
applications either directly to customers, or in partnership with large financial
services institutions.
The cost and risk of changing company culture means a lot of companies are
sitting on their hands. However, the need to book new revenue streams will force Pricing for servitization
them to adopt more flexible systems.

IAFN research highlights that organizational culture is unequivocally hindering

the changes needed in technology to effect the transition to servitization
based models.
Impact of servitization on dealer intermediaries

Additionally, operating systems need to improve and operate at the speed

necessary to support the application. For example, autonomous vehicles
will require vehicles to make decisions in micro-seconds, not wait whilst a
server buffers in the distance. Legacy systems with slow responses will not be Business process re-engineering – identifying the
acceptable or competitive in the future. opportunities to use machine learning and other new
technologies
The emergence of fintechs is no longer a new phenomenon. Increasingly,
financial services companies are recognizing that collaborating rather than
competing with fintechs may be the future. What needs to happen is the creation
of a collaborative ecosystem where different entities come together Organisational culture – managing the transition
to deliver a seamless customer experience. from a sales culture to a service culture

© Asset Finance International, 2019 All rights reserved.

 Innovation,

Smart Finance Business

Security &
Compliance

Software Retail Finance

Process
Automation

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