Five Factors Shaping Equipment Finance’s Shift to Subscriptions

by John Pearce

John Pearce is SVP of product management at Odessa, where he leads the Everything as a Service (XaaS) practice. He has over 10 years of experience building and operating subscription and pay per use technology, most recently as VP of product at Chargebee.

The subscription trend is finally coming to equipment finance. John Pearce of Odessa says five factors are shaping this shift, but why is it happening and, more specifically, why is it happening now?

Subscriptions have been taking over more and more of the economy since the SaaS era took off two decades ago. This shift is finally coming to equipment finance in the form of something called XaaS: everything as a service.

Why everything? Because in asset finance, you’re not just getting a bulldozer as a service offering (meaning you subscribe to it for a variable term instead of leasing or buying it). You’re also getting GPS units, telematics, preventative maintenance, and usage data, to name a few complementary assets and services. With XaaS, finance organizations and OEM captives are letting customers use equipment on their terms, aligning equipment finance with the Netflix, Uber, and Salesforce models to which consumers have become accustomed in other parts of their lives.

But why is the shift from standard leases and purchases to XaaS happening now? And what should banks, captives, and their customers keep in mind as they take part in this transition? Flexibility, risk management, the fast pace of technical innovation, sustainability, and holistic monetization are five factors shaping the industry’s shift to subscriptions.


Subscriptions are becoming the standard for both B2B and B2C products. And for good reason. For instance, by offering subscriptions, Salesforce makes it easier for its customers to adapt to staff fluctuations. Rather than wasting money on fixed contracts that go unused if headcount dips, SaaS customers can simply pay for the seats they need at a given time. 

Companies renting equipment increasingly expect similar flexibility, especially considering the pressure of relatively high interest rates. With subscriptions, the aforementioned bulldozer lessee can stop renting the equipment without a penalty if their need decreases, or they can pay for it on the basis of usage instead of time. This derisks subscriptions for the customer at a time when financial miscalculations are especially costly. 

Along with offering greater flexibility, XaaS dramatically simplifies equipment financing. Instead of needing to pay for regular maintenance, GPS, telematics, and other service fees separately, XaaS enables customers to use their assets and handle every accompanying element of their equipment with a single monthly payment. 

The all-in-one nature of XaaS also unlocks more opportunities for banks and captives to drive greater lifetime value. For example, even if a customer reaches the end of a financing arrangement with you and buys the equipment, your convenient GPS and maintenance bundle could encourage them to continue paying for those services. For banks and captives with XaaS offerings, customer relationships are positioned to outlast initial asset financing agreements. 

Risk Management

Mitigating risk is a core part of the equipment finance calculus for banks and manufacturers, especially with regard to residual value (the value that remains when a bank or captive liquidates equipment if a customer doesn’t ultimately buy). 

Fixed contracts typically help banks and captives limit their risk and financial burden. For example, when a captive leases a bulldozer to a construction company, that company often buys the equipment at the end of the agreement, keeping that equipment on the customer’s balance sheet rather than on the captive’s. 

XaaS, by contrast, can place greater financial responsibility on the part of banks and captives, making risk management more difficult. Since XaaS offers commitment on a variable term, a customer could wind up renting equipment just for a short period of time, leaving the bank or captive to offload the asset.  

That said, while risk management might seem to be a headwind in the shift to XaaS for banks and captives, it is often offset by the improvements it entails for the customer experience and the ability to monetize more aspects of the transaction — not just the rental of the equipment but also the services that come with it.

Pace of Technological Change

Subscriptions are also a way for equipment owners and subscribers to hedge their bets against technological obsolescence. This is especially critical given the rapid pace of technological advancements such as the ongoing evolution of AI, cloud computing, and the internet of things. Companies that previously would have leased equipment for fixed terms are leaning into subscriptions to ensure they do not get stuck with outdated technology and can adopt modern alternatives at the time of their choosing. 

For example, consider the case of work stations. Corporations invest a great deal of money in hardware that becomes obsolete within a few years. If they lease it in rigid multi-year terms, they risk paying for an item that they are no longer using toward the end of the lease or sticking with an item that no longer best meets their needs. But with subscriptions, the equipment is like a cellphone. You upgrade it every 12 to 24 months to get the latest features, and there is no penalty for upgrading. 


The push for more environmentally sustainable practices is yet another tailwind for subscriptions. As aforementioned, equipment subscription bundles tend to come with additional usage and performance data on the equipment itself. So, at the end of the subscription, both parties more clearly understand precisely how the asset has been used and its residual value. This allows both the owner and subscriber to better assess whether to keep using it or remarket it and, if the latter, for how much.

One possible outcome of this knowledge is that subscribers will simply use assets for longer. Instead of scrapping them at the end of a lease, they will use them indefinitely via subscriptions and only give them up when they’ve truly exhausted their value or a superior alternative becomes available. Another outcome is that the subscriber will give up a piece of equipment that still retains a lot of value, but rather than reflexively scrapping it, the owner will make a good offer to reacquire it and remarket it for a competitive price.

The result is environmentally beneficial in both cases. Either an item achieves a longer lifecycle, or it is optimally reused and recycled. In all scenarios, the environmental impact of the item’s usage is reduced while each party gets more value out of it.

Holistic Monetization

XaaS powers more monetization opportunities for banks and captives. With manufacturers implementing emerging technologies into their equipment, assets are only getting smarter and smarter. For banks and captives, this means that assets offer greater data availability and granularity — both of which XaaS positions banks and captives to capitalize on. 

For example, in the past, customers had to collect and analyze the data from their equipment themselves. What’s more, that data often lacked precision. A company could see how many hours a bulldozer’s engine ran over a 30-day period but they wouldn’t be able to know exactly how the equipment performed at its core mission: moving dirt.

Now, equipment offers telematics technology that automatically reports data to customers. Better yet, telematics devices provide granular data so a customer can gain actionable insights into, say, their bulldozer’s outcomes in terms of earth moved, all in real time. The XaaS model enables banks and captives to reap the benefits of monetizable features like telematics — and the valuable data they generate — through all-in-one subscriptions. 

There may be a snag or two with adopting XaaS. But if the SaaS era has anything to teach us, it’s that greater flexibility wins out. It’s better for customers. And what’s better for customers will benefit banks and captives, too.

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Terry Mulreany
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