Captive finance companies know their products better than anyone else. That gives them access to opportunities that independent competitors financing those same products don’t have.
Banks and other financial services providers follow Know Your Customer regulations to verify the identity and suitability of business partners. KYC regulations were put in place to reduce money laundering and the financing of terrorism, but they’re also good business. Learning more about one’s customers reduces the downside risk of lending to bad actors who might otherwise cost their lenders a great deal of money, including the loss of prospective customers thanks to reputational harm. Because understanding customers deeply enables a lender to simultaneously manage risk and give the best possible customer service, KYC is in the banks’ DNA.
A number of providers — particularly captive finance companies — are implementing an analogous acronym: KYA.
Knowing Your Assets puts you in the best position to extract profit from your agricultural, construction, and high-tech products at every stage.
If you can track, say, an SUV — from its first drive off the lot, to its sale to a fleet four years later, to its return to the consumer market as a ‘previously owned vehicle’ three years after that — then you can wring profit from it during every month of its working existence, plus an additional lump sum or two each time it’s sold. Your knowledge of that car — the data you keep on its history, its mileage, its maintenance needs — enables you to make the most of it at every turn.
True KYA requires a level of complexity to which few banks even aspire. A bank may understand the total value of a lot full of bulldozers, but it neither knows nor cares about the provenance or future destinations of individual dozers on that lot. It just needs the lot’s owner to make her payments.
A few captives, though, have begun to see the potential in taking a longer, more granular view of construction, agricultural and IT equipment — that is, of large capital investments that can depreciate significantly while continuing to do the job for each new owner.
The ability to manage the residual values of those products over time provides a clear competitive advantage. And because they manufacture the assets, captive finance companies know those assets better than anyone else. Captives are thus best positioned to use that knowledge to manage finance contracts over a very long period of time. Knowing the assets’ needs, captives can offer individualized service on, say, a photocopier, while generating new streams of revenue from maintenance and occasional replacement.
Acknowledging captives’ superior ability to handle these transactions over time, a few innovative banks have begun to partner with captives — enabling the banks to profit from KYA, too.
Another aspect appeals to both banks and captives: It’s great to Know — and therefore have a better chance of Keeping — Your Customer. But what happens when one of your assets goes to someone else who isn't your customer?
Under ordinary circumstances, your connection to that particular asset would end there. The new customer would have no reason to interact with you.
If you’re a captive, however — and you know a bit more about the asset’s history and likely maintenance needs — then you’ll have a very good excuse to connect with each new owner and bring on new customers.
Knowing Your Asset, then, not only helps you serve the asset’s current owner — your current customer — better than you could otherwise do. It also offers an innovative edge in prospecting.
For sophisticated captives, that kind of knowledge really is power.