The Netflix of Leasing: DLL Looks to Stake a Claim in Usage-Based Financing
by Amanda Koprowski May 2019
Whether it’s a car, a bike or a binge-worthy series, consumers have moved more and more toward pay-per-use items in their everyday lives, and businesses have subsequently followed their lead. With more clients than ever looking for usage-based financing, DLL has decided to launch a division dedicated solely to producing usage-based financing products with Steve Riggs at its helm.
Head into your average city, and chances are you’ll see some sort of bike or car share program. Or check out a weekend flea market and look at the hundreds of CDs and DVDs that populate the sales tables as owners divest themselves of physical copies in favor of Spotify or Netflix.
Pay-per-use programs, which have flourished after the Great Recession, seem like a natural outcome of tightened budgets and a rise in urban populations. After all, between the upfront purchase costs, taxes and insurance, most drivers find it cheaper to rent a car only for an hour or two on an as-needed basis than to buy their own, so it’s not a surprise to see things like car share programs become standard features of city living.
But consumer products aren’t the only areas where a usage-based pay scheme have become more common. The equipment leasing and finance industry has seen its own uptick in pay-per-use requests, with businesses who need equipment but not the burden of ownership, taking a cue from consumer behaviors.
Enter DLL. A global equipment finance company with a footprint in over 30 countries, DLL had already constructed a variety of one-off deals for individual clients but until this year, hadn’t had a division dedicated solely to usage-based finance. However, with rising demands for pay-per-use equipment and a niche that still lacks a dominant pioneer in the space, the lessor believes now is the perfect time to step outside of their more established products in order to help their customers remain competitive today and in the future.
“We put a business case together that said we need to get specialists and systems and underwriters to focus on this trend, because the shift from ownership to usage is happening. It’s real,” recalls Steve Riggs, president of Direct Solutions at DLL.
Rabobank, DLL’s parent company, greeted the idea with enthusiasm.
“They’re huge supporters of sustainability,” says Riggs. “Rabobank, as a socially-responsible bank, wants to deploy experience and networks to make a contribution to transition towards a sustainable, circular future, so they love the whole concept of pay-per-use. They believe it’s a more responsible use of assets and feeds right into their values, as well as ours, frankly.”
The desire of businesses to use rather than own equipment, offered DLL the opportunity to pursue growth in different industries. Expansion wouldn’t come solely from growing the company’s already large lending verticals – food and agriculture, construction, industrial, healthcare, office equipment and technology– but by also investigating new markets that see the benefits of pay-per-use financing solutions.
As new consumer products get developed, they in turn affect the rest of the market, as is the case with electric cars. Both everyday motorists and truck fleets can now regularly access electric vehicles that simply weren’t available twenty years ago. This also means drivers will need access to things like chargers and other products which may not be used regularly but are necessary to the vehicles’ function.
“New asset types are just starting to evolve,” says Riggs. “There’s all kinds of new industries out there that we’re not in. So, let’s look at that, let’s look at services.”
Riggs also views usage-based financing as a way to focus on more direct-to-end-user business, an area DLL has experience in but hasn’t been pursued as heavily as its vendor side, and as a way to expand its product offerings in their current network.
Riggs also believes DLL will have a leg up on many of its competitors in the space by not only getting out of the gate early, but by offering more comprehensive financing solutions. Captives, for example, have a presence in the usage-based space as well, but typically only apply it to one segment of their product line or certain types of equipment, even if a business project necessitates multiple moving pieces.
“If you look at IT installations, they usually involve a variety of different brands, not just one manufacturer. So, you need somebody out there who’s equipment agnostic and able to provide financing for all of the different products,” says Riggs.
On the end user side, the benefits of a pay-per-use agreement move beyond just a one-stop-shop offering. Usage-based deals can be far more flexible than a termed lease, as they can account for things like a particular department increasing or decreasing headcount or a change in a business model without continuing to charge a company for a product that is no longer effectively in use or used at the same rate.
There’s also an advantage for a company’s lease accounting. In some cases, DLL structures its usage-based deals without a guaranteed minimum payment, often letting lessees keep the asset off their balance sheets, which is a huge benefit for auditing purposes.
While there are more than two on-demand, entertainment options nowadays, Netflix and Spotify were able to dominate the industry by seeing a gap in the market and running to fill it early on. Riggs and the Direct Solutions team aim to do the same thing for usage-based financing, anticipating where the market will inevitably lead and making sure they’re at the head of the pack.
“We think usage-based products are going to be a significant portion of financing moving forward,” says Riggs. “So, if we can get this down, and we can sustain it through the business cycle or at the beginning of a new product development cycle, I think we can establish ourselves as a pay-per-use leader in the financing industry, which will help ensure our current and future customers are primed for success.”
Whether you are a third-party originator or a funding source/bank, the responsibility lies with all parties to build partnerships based on mutual trust, mutual commitment, shared ideas and common goals.