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A journey towards sustainable and profitable growth

From product-as-a-service systems to pay-per-use and the circular economy. A journey towards sustainable and profitable growth.

By Pascal Layan, Deputy CEO at BNP Paribas Leasing Solutions

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Out with ownership and in with the product-as-a-service system.

These days would anyone prefer to buy a bike over using a self-service rental scheme? Or buy a CD instead of having access to an unlimited playlist?

Ownership is no longer a priority for the younger generations. According to a survey by Obsoco, the society and consumption Observatory, 77 % of the French population say they would rather opt for access to a product rather than ownership.

Some sectors have already begun to benefit from this new consumption model, such as the automotive industry which has almost abandoned loans for leasing.

This trend is also gaining momentum in the professional sector. Rental solutions for professional equipment saw an 8 % growth in 2018, clearly demonstrating how attractive such solutions are for companies, especially from a financial point of view. Paying a monthly rent is an easy way to bridge the gap between budget and costs, in order to free up investment capacity and to optimise cash flow.

This flexible financial solution also allows companies to benefit from the latest technological innovations. Innovative breakthroughs and the regular release of new products and services have contributed to the boom in leasing. Having and maintaining an edge over the competitors depends heavily on the efficiency and the performance of your machinery. However, owning the machinery, no matter how efficient it is presently, would mean exposing the company to the eventual risk of obsolescence of the asset. Leasing, on the other hand, gives companies the flexibility to adapt to technological evolution and any possible regulatory constraints that may involve.

While working with clients of different sectors and sizes, it is important to keep in mind their needs and possible constraints while thinking of an appropriate financial solution. There are high-tech users who want the latest devices and use them intensively, and then there are relatively moderate users who prefer functionality and need reasonably priced technological products. The question is, how can we meet the needs of these two different client profiles?

Circular economy: “I finance, I recover, I refurbish and I rent again”.

Circular economy is one of the answers to this challenge. And we all have a role to play in this new consumption model which is proven to be more sustainable for the environment and at the same time more profitable for the businesses.

Thanks to leasing solutions, financial companies make sure the equipment is recovered at the end of a contract and refurbished for a second or even third life. This approach requires working closely with equipment manufacturers and distributors who must integrate the constraints of refurbishing and recycling in their product design. Let’s take the example of a fleet of smartphones or tablets: it is now possible to recover, reformat, repair and resell or rent out again 98% of these devices. “I finance, I recover, I refurbish and I rent again”.

A circular management of equipment also allows the democratization of expensive technology by making devices more affordable for a second usage. For example, a smartphone which no longer satisfies company X after a year may be perfectly satisfactory for company Y or for local authorities with tighter budgets.

The main challenge is shifting the industrial paradigm from obsolescence (sooner or later) to durability. Such longevity is an additional source of revenue for manufacturers. They will be motivated to make robust products which remain efficient for longer and which still have value when recovered after their first life. Maintenance during use also plays a fundamental role in the residual value of a product. The better the maintenance of a product during its first life, the higher the residual value. That’s why more and more leasing solutions include installation and maintenance services. Largely thanks to IoT, it is now possible to precisely monitor how a device has been used to prevent breakdowns and thus prolong its life cycle. And that’s not all!

From Product-as-a-Service and the Circular Economy to Pay-per-Use : only a small step away?

IoT is key to companies being able to develop pay-per-use and charge their clients for real use of equipment as opposed to a fixed monthly charge.

Pay-per-use solutions already exist: Nordaq, specialised in water filtering systems, charges restaurants for the exact litres consumed. And photocopier and printer suppliers charge by the copy. But they are not yet widespread.

What are the obstacles and potential solutions?

Firstly, to apply pay-per-use solutions, exact use of the equipment must be tracked. IoT now generates this data, tracking the number of kilometres covered by a tractor, hours used by a PC or images taken by an MRI. But it takes time to implement such technology, particularly for companies with outdated systems.

Furthermore, charging for real use obliges companies to modify their business models. Their revenue will no longer be fixed, hence less predictable and therefore more complicated to manage. Manufacturers will need to work with financial institutions to create new pay-per-use schemes, keeping in mind the needs and expectations of the end users and their own profitability.

Companies will also need to adapt internally to the changes this new business model would lead to. The sales teams, for example, will no longer be selling a product, but a service, so their approach will be very different. Being able to propose the right offer will depend more than anything on how well you know your clients and their needs..

The pay-per-use system generates constraints due to these changes, but at the same time also presents opportunities. The data collected will improve how companies understand their clients, enabling them to adapt their offers accordingly and stay competitive.

A unique opportunity for French companies

France has all the expertise required, both technological and financial, to successfully make this conversion. As a pioneer in the European financial leasing market, France counts two principal players which dominate the sector. As a result, France is well placed to become the European forerunner in this new economy. In a market where SMEs and medium-sized companies sometimes suffer from insufficient access to credit, they will have access to alternative financial solutions, leading to changes in market conditions and practices creating a new competitive ecosystem. Clients will be charged right without compromising on the margins. A win-win situation for manufacturers, companies, and the planet!

The shift to an increasingly product-as-a-service system within a circular economy is well underway. We must now find ways to help companies and institutions change the way they finance their equipment. It’s a bit like the gold rush in our forefathers’ time. The product-as-a-service system is the new El Dorado…it is now up to our French SMEs and medium-sized companies to seize the opportunity and use it to create growth. And up to us to keep the wheel turning!

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