Product-as-a-service boosts the circular economy

‘As-a-service is a term we’re hearing more and more and in all sorts of contexts. But is it just a case of old wine in new bottles? Is it a buzzword for a concept that’s actually been around for a very long time?

“Offering products as a service has been a thing for decades,” says Rob van Willigen, Commercial Adviser for Product-as-a-Service (PaaS) at ABN AMRO. “Take leased cars, for example. Most companies don’t buy their own cars. These always remain the property of the leasing company, which also maintains them. Obviously, that part is not new. What is new is that PaaS is now being used in other product categories and also reached the private market. Kitchen appliances, electric bikes, washing machines, solar panels – practically everything is available ‘as-a-service’ these days.”

Less waste

PaaS involves the marketing of a product as a service to which the user subscribes. They usually pay a fixed monthly fee covering things like maintenance, replacement and insurance. In some cases, the fee is calculated based on how much use the product gets – also known as pay-per-use. As soon as the subscription ends, the product returns to the supplier, who may opt to reuse the product or parts of it. PaaS offers the end user flexibility and ideally contributes to a more sustainable and circular economy.

“ABN AMRO’s aim is to accelerate the transition to sustainability,” says Rob. “Reusing products means that less energy and raw materials are wasted. Raw materials are becoming more expensive and scarcer, which is why reuse on a greater scale is essential. The bank can help accelerate this development by advising and, where possible, providing financing to new or existing companies looking to get started with PaaS.”

That’s no easy task, though. In practice, there are a number of limitations that represent challenges to PaaS companies and their success. As it turns out, financing PaaS companies, particularly start-ups, is complex.

An uneven playing field

“Our economy is based on a system where labour is taxed more heavily than the use of raw materials,” explains Menko Remmelts, PaaS Project Manager at ABN AMRO. “PaaS is essentially about service provision, and thus labour, making companies based on traditional, linear business models, which are less about service provision, more profitable. The truth is, there just isn’t a level playing field yet. In addition, banks are bound by their own risk models and are subject to the strict regulations imposed by supervisory authorities. This – combined with the fact that, where PaaS is concerned, expenditure precedes profit – makes financing these businesses, especially start-ups, practically impossible.”

ABN AMRO has earmarked its Sustainable Envelope for a number of exceptional cases, however. The envelope allows the bank to finance innovative sustainable business models for which there aren’t necessarily standard solutions, which is often the case with PaaS.

ABN AMRO’s main focus is on financing and supporting established companies based on traditional business models looking to develop PaaS concepts alongside their existing business. Specialist advisers at the bank like Rob are holding up a mirror to entrepreneurs and reviewing their business models. In collaboration with the relationship manager and financing specialists, they’re exploring new options for financing. Menko says, “ABN AMRO is a bank that supports transitions and tries to accelerate these wherever possible.”

Circular homes

A good example is a company based in the Dutch city of Montfoort called Jan Snel, which builds circular homes in modular units. The houses are built in pieces at the factory and then transported to the construction site by truck. After being set up and lived in temporarily, they’re collected again a few years later, refurbished and erected elsewhere.

“Obviously, this goes a few steps beyond prefabricated construction,” Rob says, “since rental, service and maintenance contracts are also involved. Jan Snel remains the owner of the materials from start to finish.”

Enormous potential

Although the PaaS market is on the rise, it’s still in its infancy. There’s enormous potential, though, especially once the required reuse of materials is enshrined in EU legislation in line with expectations of the European Commission’s Green Deal.

“PaaS is not an end in itself,” Rob explains. “It’s a means of recovering products and reusing all or part of them. But let’s not forget it’s also a competitive revenue model for businesses. ABN AMRO is closely monitoring developments and remains committed to providing the best possible support to the PaaS market and promoting its growth.”

Rob sees PaaS as a win-win situation: “Because products are given a circular life cycle, it makes sense that suppliers will develop better-quality products. After all, they will remain the property of the producer, so the company, too, will benefit from a longer lifespan of their products. The bottom line is less rubbish and less energy wasted. In a circular economy, everyone benefits.”

Are you an entrepreneur thinking about developing a PaaS concept? If so, contact your relationship manager or the ABN AMRO PaaS-desk. They will be happy to advise you and get you in touch with specialists at the bank.