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 It has been a pleasure to work with Aston University on this
industry; however, it will quickly become better known as auto and project. I would also like to thank the many individuals and
equipment finance providers begin to focus on pay-per-use and companies that have so generously given their time to support
pay-by-outcome models such as pay-per-mile, power-by-the-hour the production of this report.
and— in the case of robots on a production line— pay-per-pick.
We are at the start of the servitization journey and, as you
There can be little doubt that customers are increasingly attracted will read from the last page of the report, we have identified a
by the prospect of paying to use, rather than paying to own, number of pathways for additional related research to deepen our
certain assets. Correctly formulated service-based models of understanding of the impact, issues and opportunities afforded to
finance are much more likely to meet their needs. They also us all by servitization.
offer exciting opportunities for our industry to grow new revenue
streams and profit. We therefore plan to invest in further research on servitization in
the coming months so that we can help you prepare your business
On the other hand, the transition to services also brings significant plans for the changes that lie ahead.
complexity for pioneers, who will need to acquire new skills and
learn to manage new types of risk. The return for those who With my best wishes,
acquire those skills quickly promises to be great.
Brendan Gleeson
At White Clarke Group, we welcome the opportunity to support CEO
this exciting research project, which we hope will help the industry White Clarke Group
to both better understand the landscape of servitization and to
benefit from it.

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

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 International Asset Finance Network (IAFN) was established in 2013 to allow senior
of end-to-end automotive, consumer and equipment finance software. executives in retail auto, fleet and equipment finance organizations to meet to consider
They deliver first-class software to more than 100 captives, banks how technology, changing customer expectations and regulation are transforming the
and independent finance organizations in 30 countries. For more asset finance industry.
information, please visit www.whiteclarkegroup.com
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 The move towards advanced services requires organizations to explore new
services offerings to provide value-driven outcomes that are scalable and resilient. business models, and has implications for captives, manufacturers, banks,
independent financiers, and software solution providers.
Technology is driving, and enabling, radical changes in consumer behaviour,
leading to a major shift in consumption patterns across a range of market Developing a servitization strategy, implementing the right organizational culture
sectors. The switch from ownership to usership has, until now, been most to deliver digitized benefits to customers, changing the corporate structure,
marked among the younger cohort of consumers, for whom on-demand and finding ways to re-market and re-deploy assets effectively to maintain and
streaming via Netflix has replaced the traditional approach of buying a DVD. enhance residual values and retain customers through continued usage rather
than re-purchase are all critical challenges.
However, as mobile and always connected digital technologies become standard
channels between consumers and the companies aspiring to sell to them, so Building on the findings from in-depth research by ASG, this white paper looks
this trend is gaining traction. The focus is starting to shift, with the line between at what underpins the new drive towards servitization, how organizations should
products and services blurring and an eventual move towards concentrating on the respond, and the next steps to take.
outcome the customer is seeking, not the means by which they reach that goal.

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 A circular economy is an alternative to a traditional linear
Industry?” A total of twenty-seven industry experts contributed to the study economy (make, use, dispose) in which we keep resources in use
and a number of hypotheses were tested as part of the research. 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.
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
Hypotheses
Corporation, the technique seeks to reach consensus among
participants about a complex topic through a survey consisting 1. The focus of manufacturer captives will shift, wholly or in part, away from
of a series of rounds of discussions and debate. 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
Five key findings emerged: requirements, ongoing funding and bank regulation.

1 Respondents are seeing evidence of increased interest in and demand 2. Banks will be unwilling to compete as full service operators and will
concentrate instead on their core business of providing funding and
for services and outcomes as opposed to the purchasing of assets.
managing credit risk.
This has the potential to disrupt the asset finance industry in a number
of ways. i. Due to their detailed knowledge of the asset, specialist skills and
experience combined with close customer relationships developed
2 This disruption represents an opportunity for firms to gain a first mover over a long time, along with a different risk appetite to most banks,
advantage if they are willing to be flexible, innovative and adopt new captives have distinct advantages to develop advanced services.
business models.
3. Independent financiers will focus on creating seamless customer
3 The ability to price and manage new types of risk will be a key capability journeys, for example managing the online to offline customer journey,
in this area. or as hybrid funders offering a range of finance services to meet all
the needs of specific customer types. Independent financiers can also
4 Servitization provides opportunities for businesses to demonstrate their emphasize a multi-brand and best in class state of need as opposed to
increased focus on environmental and sustainability concerns and the state of the art focused approach.
promotion of the circular economy. 4. The traditional full-service software solution market designed for
exclusive use by one financier is ripe for disruption. The single end to
5 Collaboration not competition. A partnership approach with different end service providers will be replaced by multiple tech companies each
entities working in an ecosystem will be the most likely model to succeed offering a narrow range of specialisms including the provision of
in many sectors 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 ii. Drivers for manufacturers

“
expectations

”
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.
Servitization models are becoming
(Source: Captive – Copiers and Document Management Services)
increasingly common across a diverse range
of industries, partly inspired and enabled by
OEMs are responding to growing customer demands and competitor offerings by adapting their
new technologies which are facilitating new
offerings to protect, maintain and ideally grow their market positions.
business models and service provision.
Different markets and OEMs are experiencing different challenges and demands, so the speed of
Additionally and importantly B2B customers migration and adoption of such models varies significantly.
have growing expectations based upon their
own consumer experiences
in the B2C world. Generally manufacturers are motivated by
• Desire for greater and more consistent sources of revenue and profits from increasingly diverse
sources beyond pure hardware margins
Business customers needs are seen to be • Ambition to match customer demands and provide excellent customer experiences
moving increasingly towards :
• Usage not ownership For more proactive players, there is a deeper strategic understanding of opportunities to:
• Flexibility • Increase services penetration
• Value for money • Drive increased customer retention
• Drive upgrades and protect and enhance margins
• Simplicity and a one-stop shop
• Better understand and predict customer needs
• Transparency
• Have greater control over equipment flows and secondary markets
• Societal and brand benefits
• Exploit circular economy trends and second and third life equipment
(e.g. circular economy participation)
• Security and compliance, peace of mind On the downside, OEM’s need to work harder to retain customers as the “omni-channel” offering
and focus on core business activities facilitates switching, plus modern customers are more brand promiscuous
• A seamless omni-channel
(ie on-line to off-line) experience
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 Automotive Rail

Macroeconomic trends across Europe, including Automotive captives are using digital capabilities In the UK, rail contracts are let to train operating
an aging population and increases in healthcare to develop new services to offer customers. companies, under competitive tendering
costs which outstrip increases in GDP, are processes. It has become increasingly difficult
driving hospitals to consider innovative models
to fund investment and service. Increasingly,
contracts will be configured on a pay per use
“ We find ourselves in a better position to
understand the needs and to connect to the
customer to explore different opportunities.
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
basis where, for example, a hospital will pay so Digitalization gives you the opportunity to the East Coast line, renationalised in 2018, and
much per scan to the equipment provider. unwrap new products and services that you looking closely at Northern Rail.

“
can’t really offer in a traditional way. Every
We are also interested in exploring new The long term nature of the rail contract, where
vehicle has about 9,000 sensors or so that
options for sustainable growth, and looking the asset may have a 30 year life, combined with
for further expansion in adding additional are collecting the information on driving
conditions, driver conditions, the conditions the pressure to keep costs down, have led to
services and models, business models that

”
of the truck, of the road, of many items. So innovation in the rail industry and the nature of
can provide value to our customers.
there is a stream of about seven to nine the contract with the customer.
(Source: Captive – Healthcare).
gigabytes a second that is coming out of a
Increasingly, the risk in these contracts
Pay per use contracts require the manufacturer vehicle… it is information that you can use
is becoming the responsibility of the
to take on a new category of risk beyond the to get a better understanding of different

”
financial and equipment risk, i.e. the usage risk. manufacturers:
customers’ requirements.

“ I think that it is important to understand

the impact on us, probably 10 years later
than other industries. This industry is
(Source: Captive – Automotive).

New models such as subscription services

“ 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
are being developed to fill the perceived gap see it going back the other way, and I think
going through change and there is a strong
push away from, let’s call this box shifting, in the market between car hire companies and as this model becomes, and has become, the
towards outcome based offerings where a short term leases. This calls for an overhaul of common practice within the industry I find it

”
manufacturer has to provide value based legacy systems and traditional approaches to very difficult to see that changing.

”
healthcare. (Source: Captive - Healthcare) lease terms. (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 The servitization models introduce additional risks Operational risk
which many non-specialized lessors may well
For pay per use solutions there is a risk relating to
find challenging.
Julian Rose, Director, the assessment of likely usage, not only in terms of
Asset Finance Policy: the period of use, but also in terms of the level of
Financial Risk usage along with the nature of that usage.
A ‘purer’ approach to servitization - without OEMs operating in a current model of manufacturing
minimum contractual quantities or periods goods and selling them will have to transition into The risk return equation for these new risk types
-continues to fit our high-level definition of a model of payment which pays over the lifetime of looks markedly different for an OEM compared with
leasing. It’s less likely, however, to be caught as the asset. This will generate a significant working a generalist lessor. OEMs and their captive finance
a lease under accounting rules, simply because capital requirement and potentially an opportunity companies have specialist knowledge and asset and
there is no defined period of time for which for banks and specialist finance operations who service related competences and resources as well
the equipment is used (although the detailed have an appetite to take on this opportunity. as privileged access to both current and historical
accounting rules on ‘substitutability’ of assets data, giving them a potentially important market
are full of contrived twists and turns). Specific working capital requirement can be caused
by the inability to recognize revenue at the point advantage compared to generalist lessors.
It’s potentially good news if the lessee wants of sale as the manufacturer retains an interest in
to keep the contract off-balance sheet, noting the produced goods in the event of there being a Manufacturers may also find it hard to retain
carefully this is not about ‘avoidance’, it’s repurchase obligation at some point in the future. customer loyalty as customers take advantage
about trying to give investors and other users of the developing omni-channel approach being
of accounts more meaningful information. adopted by most companies.
It’s potentially bad news if lessors want to Legal and Regulatory risk
recognize more revenue up-front, but that If OEMs enter into financing arrangements, in
particular if they bundle certain services such
Partner Risk
usually has no real economic impact, instead it
as insurance, they will potentially face increased There is a risk associated with integrating the
just creates a need to adjust revenue targets to
allow for the different accounting approach. attention from regulators. partners within the manufacturers systems.

This is often a risk that OEMs are reluctant Additionally the manufacturer will take on the risk of
to shoulder. the partners performance. In the event of a service
Many lessors and OEM captives have a good
partner going out of business the manufacturer
understanding of residual risks and have developed
Contracts with customers need to be re-written – will carry responsibility for finding a remedy or face
strong asset management and remarketing
especially considering the effects of the transition reputational risk.
capabilities to enable them to offer customers
attractive pricing by crystallizing the benefits of on the trade cycle.  
the future value of the equipment in their offers.

© 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
Captives
The focus for manufacturer captives may shift, wholly or in part, away from the
quick access to products and services in a simplified way. These services are provision of finance and towards sales, customer loyalty, new models of asset
affecting the expectations of consumers as they buy other more traditional types usage and the provision of services. An example of this is shown by Daimler
of assets and services. Financial Services rebranding itself as Daimler Mobility.
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 Manufacturers with manufacturer captives may seek to reduce their exposure
and resource efficiency. to capital requirements, ongoing funding and bank regulation, although in some
sectors manufacturers may be willing to invest capital if the area is considered
This commitment to life-cycle asset management typically results in higher
strategic to the business.
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 Advanced services requires a movement from a “servicing centric” to a “customer
lower costs of usage. centric” approach, getting closer to the customer and really understanding their
In the photocopier industry, significant effort has been made through R&D business and desired business outcomes. With high value assets, this may
require co-located facilities where manufacturers work alongside their customers
and product design to make products easier to replace and refurbish by using
and innovate new value propositions.
modular design approaches and this approach is being adopted in many other
industries from high technology through to transportation.

© Asset Finance International, 2019 All rights reserved.

Captive finance providers are well placed to exploit the opportunities presented This traditional outlook and functional silo structure may limit the flexibility and
by servitization. They have many strengths which they can leverage to deliver innovation required for banks to successfully support manufacturers in the
these new services including, long term customer relationships, detailed transition to advanced services.
knowledge of the industry and the assets, and with the OEM, access to
customer and asset data. On the other hand, banks may have certain advantages over captives because
they have large balance sheets and rigorous risk management capabilities.

“ 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
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
the intricacies of the print business, we understand the ebbs and flow of spare capacity that the OEMs can also take advantage of at a competitive cost.
the contract tenders and so forth.
”
(Source: Captive - Copiers and Document Management Services)
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.
However, connected technologies are enabling manufacturers to have a direct
relationship with customer unlike any they have ever enjoyed before. For One approach banks take is to enter into joint ventures with captives or
intermediaries -including captives – this may prove a challenge. Moving into this manufacturers in order to combine asset knowledge with banking capabilities.
area may also put the OEM into competition with its own distribution channel
network which in some cases are already delivering services into customers.
“ 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
Banks 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

Banks may be unwilling to compete as full service operators, and may instead
concentrate instead on their core business of providing funding and managing
capitalise on both party’s skill sets.
” (Source Bank).

Examples of this include Santander’s Joint Ventures with Mazda, Volvo,

credit risk. The financial crisis brought an increased focus on risk management Hyundai Capital and PSA Finance and Société Générale’s joint venture with
and capital adequacy on banks’ balance sheets. Philips. Black Horse with JLR.

Banks are familiar with financial risk, and in the context of leasing, have come to Banks can also enter into alternative arrangements with OEM partners where
understand equipment risk. the roles and risks can also be defined and shared without entering formal
joint venture partnerships. Such cooperation agreements are commonplace in
In the “pay per use” world, they are now having to develop an understanding of the management of asset and credit risks, and advanced players are already
usage risk and performance risk. In addition to the change in the nature of risk addressing the newer risks associated with servitization models. It is worth
in these contracts there is the question of who will own the new types of risk in noting that for banks to focus on such areas requires there to be scale and also
the future. requires a financially strong counterparty. These two factors can be seen as
limiting banking appetite to engage with many smaller OEMs.
It will be difficult for banks to manage and quantify such risks in their current
processes and risk management committees. 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
Inside a bank where there are thousands of credit committees that approach to consumption based or pay per use solutions, demonstrating
take risk on balance sheets of companies and cash flows of companies, their belief that this trend towards servitization is growing and represents a
it’s difficult to find someone that’s prepared to take a risk on how many

”
significant opportunity.
patients are going to walk into a hospital and ask for a scan. (Source: Bank).
© 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

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Automation

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