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Jan 06

Keeping Tags On Your Assets

Some old fashioned truths were brought to the fore at LeasingWorld Expo, which lead Nic Evans on to a high tech solution for a very current industry challenge.

my four of clubs

Mark your card

“Mark your card” said the magician. I wrote my initials and a smiley on the four of clubs before holding it firmly down on the bar in the Tattershall Castle. With hindsight it was inevitable that my card should have gone from under my hand. The mystery remains of how it got to be folded and gripped by a paper clip in the magicians hand, which had remained in clear view of both myself and the esteemed editor of Leasing World.

This incident took me back to the FLA Seminar earlier that day at LeasingWorld Expo on Responding To Higher Credit Risk. I expected a discussion on the finer points of credit analysis or risk weighted pricing. However Robert Munn of Total Asset Recovery took us back to a much more fundamental truth. “In this challenging economic climate, as credits are more difficult to underwrite, the Asset is your key collateral. This needs a proactive approach to asset management”

The key questions that Rob posed at the seminar are:

  • Does the asset exist? – Speak to dealers and suppliers. Physically inspect some of them.
  • Is it correctly priced? – Check asset prices – from manufacturers’ price lists and by physical inspection.
  • What’s the asset worth now and over time? – Get a market valuation prediction.
  • Are you buying what you think?
  • What’s your audit policy? – Audits counter fraud
  • Will the asset be there if the dreaded day comes? – asset marking is an important often neglected activity in fraud mitigation

We have all been there:

  • The Credit Director wanders into the IT department asking “Could you just look down this list of kit and see if the prices are reasonable?” “Well that must be a great laptop at that price!”
  • The unseemly rush of funders trying to get ahead of the receivers as they make sure that their assets are clearly marked.
  • Dawn raids on dodgy Essex motor dealers with suspiciously empty forecourts.

Return to ‘Old Fashioned’ lending

There is no money in being wise after the event. “Return to ‘Old Fashioned’ lending – get to know the customer and treat your asset as core collateral” says Rob. He went on to show some of the practical inspection services and asset marking services that Total Asset Recovery offer. A DNA datadot, less than 1 mm across, can be invisible to the untrained eye, but contain more information to identify an asset than an easily removable serial number sticker.

Clearly the power behind such identification is the central asset register. The Vehicle Finance Industry is familiar with the HPI database – and that is clearly a major protection against asset fraud.

“Why haven’t registers been adopted for other sectors?” came the question at LeasingWorld Expo. In technology serial numbers are widely used – although the Service Tag seems tightly managed by the manufacturers. Could they have a vested interest in controlling this connection to their customers rather than sharing a central register? Technology funders such as 3Step IT also offer services for asset tracking and management, giving lessees online access to maintain additional information on their equipment, such as cost centre and location.

Chips with everything

In the last decade the use of technology for identification of assets has become very established. The principle technology in this area is Radio Frequency Identification or RFID.

The basic version – Passive RFID – has chips that respond with their identification when scanned. Chips can be embedded in an asset, which makes them hard to remove. This technology has already gained acceptance in financial services for micropayments, with toll road payments, touch n’ go payment cards and London Transport’s Oyster Card. While such “electronic purses” usually don’t hold balances on the chip, the storage on these chips can be large as is seen with their use in biometric passports. The security of such sensitive information is an issue, with reports of data being read off the passport over several yards, even though shielding is now built into the covers of US passports.

Another limitation of this passive technology is clearly demonstrated by my dog Clover: despite being ‘chipped’ – which gives her buttock more intelligence than her head – this is no help in finding her when she escapes. Active RFID overcomes this limitation by having a powered chip that can transmit up to 50 feet using Wi-Fi technology. This can be increased to a distance of several miles by using mobile phone technology, which allows tracking across the coverage of mobile phone networks, and finding the location by measuring the distance from several mobile phone masts.

Location, Location, Location

“The primary benefit of this technology to the funder is the security of the asset.”

says Adrian McMullan of L&A Consultants, who specialise in integrated resource management for fleet and logistics operations. “If you are concerned over the location of vehicles, alarms can be set that will notify you if the vehicle passes way points such as approaches to ports. It can be covertly equipped in the dashboard or under the engine – there are so many black boxes in a modern vehicle it is hard to remove.”

At his desk or on the golf course?

Such pervasive tracking does resurrect the old tachometer “spy in the cab” arguments, with a very modern twist of internet privacy. Indeed it has even been controversially suggested that companies should use this to measure the effective use of some of their more expensive human assets – keeping track of their sales force by the location of their mobile phones.

Once you have this connection to track your assets almost wherever they might be, then clearly they can also communicate more than their identity, but also usage and service data . This starts to open up new opportunities for leasing and equipment rental:

  • Copiers that send in their own meter readings.
  • Cars that not only say how far they have driven, but how fast and even how well.

“You can get real-time mileage capture for vehicles, which both warns of excess usage and prevents clocking.” says McMullan. “Both funders and insurers ask us to provide Incident Data Recorders – IDR – that are triggered by extreme deceleration. They will record speed and other measurements every tenth of a second for thirty seconds before the deceleration and fifteen seconds after. Insurers use this to find who was at fault for an accident. Funders can check that repairs have been carried out to protect the value of their asset. Hitting a kerb may not visibly damage bodywork , but the funder can see that the impact could have damaged the chassis.”

Getting Connected

Such “Smart” telemetry can fundamentally change the whole economic relationship between the asset and the user. “Once devices are connected and their use can be metered, there is no longer any need to buy them.” says the Economists technology correspondent Ludwig Siegele, in his recent report on Smart Systems.

“Once devices are connected and their use can be metered, there is no longer any need to buy them”

find your choice of zipcar

Which car shall we use today?

In London, and several US Cities, members of Zipcar simply logon to find the nearest vehicle (that reports its own position by GPS), unlock the car with another RFID chip in their membership card, use it by the hour and then return it to any of the allocated parking bays across the city. You can look for the nearest estate car if you have a load to move or make a ‘lifestyle choice’ for coupe with a sunroof and an adapter for your iPod

Rolls Royce offer in-flight monitoring for their jet engines, that not only lets them charge airlines a fixed cost per flight hour, but also allows them to predict when maintenance will be needed, which increases aircraft availability. (It is not known whether this showed any problems with the Rolls Royce Trent engine that disintegrated on the Quantas A380 over Singapore in November.)

Paying for service

Now the IASBs Draft Exposure places new requirements for lessee capitalisation and complex accounting calculations. It is widely expected that this will drive a large move toward service contracts in order to keep assets, particularly non-core assets, off the balance sheet. This will mean many finance industry changes:

  • from copier rental to managed print services,
  • providing the use of a car, rather than lease of a specific vehicle
  • even paying for thrust rather than financing a jet engine.

Use of such smart systems to remotely monitor usage clearly allows charging for a service rather than the right to use an asset.

Could we even see city car sharing schemes like Zipcar coming to the company car park?

A message behind the Boris Bike?

Perhaps the sponsor’s message on the back of the “Boris Bikes” now being rented around London is a sign that one bank has already spotted this opportunity in technology-enabled short-term service contracts?

This Article appeared in January 2011 Edition of LeasingWorld.

(c) Nic Evans 2011. This Article may not be reproduced, in full or in part, without the prior permission of the author.

Nic Evans is an independent consultant and interim manager for commercial finance technology and business agility. He is an affiliate at Invigors LLP. If you want to discuss any points raised by this article or broader issues he can be contacted by email nic@nicevans.eu or through LinkedIn http://uk.linkedin.com/in/nicevans

Permanent link to this article: http://transformingfinance.eu/keeping-tags-on-your-assets-2/