In May Peloton launched a new 'equipment as a service' rental scheme in the UK. Possibly more out of necessity than choice, it is a bold and innovative leasing model. Although aimed at consumers, it could also be relevant to the UK business asset finance market.
The key features of the Peloton scheme are:
£99 per month fee for a package including the Peloton bike (retail £1,745), Peloton all-access membership (normally £39 per month) and cycling shoes (retail £120).
Cancel anytime
Free collection
Purchase options, with Peloton providing estimates of likely prices, e.g. at 36 months the estimate is £595
For anyone considering Peloton - some readers may well have tried on as they are appearing in many UK business hotel gyms - it’s an attractive proposition. It’s a hardware rental but the focus is entirely on the asset usage rather than ownership, i.e. the bundled membership and shoes.
The £200 joining fee gives Peloton some level of confidence that the user expects to stick with it, as well as covering part of the loss if it is cancelled.
Even so, some may argue that the ‘no risk’ proposition is over-generous, an attempt to halt the decline in Peloton membership numbers (Peloton’s share price is down around 98% from its all-time high during the Pandemic in January 2021).
But in its Q3 2024 investor letter, Pelton reported that its rental was outperforming internal forecasts, both in terms of monthly subscribers and rental buyouts. Whilst the churn rate for rental users was higher than for outright purchase, the gap was closing. Sales of certified refurbished bikes were also strong.
What is it about this solution that could be relevant to the business asset finance market?
Sustainable: The removal of a minimum fixed term means the asset should be actively used by the customer, and when the customer’s needs change it is refurbished and rented or sold to a new user. This is the 'circular economy' in action.
Embedded: It’s designed and marketed by the provider of the service, boosting sales while offering a convenient and fully integrated financial solution to the customer.
Package of benefits: Although it’s based around an asset rental, the customer will look at the overall package of usage benefits. This isn’t just financing of an asset, it's the package that counts, and that is reflected in the price.
Mitigated risk: The risks to the lessor of the 'cancel at any time' term are mitigated by the joining fee - Not so much the level of it (set too low to cover the losses from very early returns) but its effect in filtering out users who do not expect to stay on the service.
Accounting advantages: With the focus on the service and not the asset, it’s possible that the provider could substitute the asset from time to time, optimising the overall asset portfolio. With IFRS 16 lease accounting rules being extended to all UK companies from 2026, this could avoid the extra bureaucracy the new rules will bring.
Would an asset finance provider ever contemplate a 'cancel anytime' leasing arrangement for business customers?
It certainly doesn't fit most lessor's policies at present. Yet the Peloton model could prove that where there's shared confidence in the solution being financed between the equipment supplier, lessor and customers, a bit more risk can be managed in a leasing solution, and deliver significant benefits to all parties as well as the environment.
For industry comments on this article, see LinkedIn here
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