In the modern era, staying connected is paramount, and that often requires having the latest cutting-edge devices. Device financing has emerged as an innovative solution that caters to both individuals and businesses to help bridge the digital divide created by financial constraints in obtaining a device.
In this article, we’ll take a deep dive into the strategies that can help you maximize your Return on Investment (ROI) through device financing in the vibrant and ever-expanding Asia Pacific market.
Device Financing in Asia Pacific
Device financing is a practice that breaks down the cost of a device into convenient and manageable installments. With a staggering 2.7 billion smartphone users in the Asia Pacific region alone, device financing is not just a trend, but a transformative force.¹ China, a technological powerhouse, witnessed mobile payment transactions soaring beyond $59 trillion in 2022. In India, more than 300 million smartphone users utilize mobile payments.³
This impressive adoption of smartphones as well as alternative payment methods underscores the region’s readiness for innovative financial solutions. Renowned giants like Samsung and Apple are actively venturing into device financing, indicating a thriving market poised for significant expansion.
The Asia Pacific region comprises a dynamic tapestry of markets, each adorned with unique regulatory nuances. Take Singapore, for instance, where the Payment Services Act governs digital payment providers, ensuring data security and customer protection. These regulatory frameworks significantly influence financing terms, credit evaluations, and overall consumer assurance.
Revolutionary technologies are at the forefront of reshaping device financing. AI-driven credit scoring systems, boasting a remarkable accuracy rate of 90%, are drastically reducing default rates, consequently amplifying ROI. In parallel, blockchain technology is casting a veil of transparency and security over transactions, laying the foundation for enhanced consumer trust and confidence.
The Asia Pacific region is on the cusp of a digital payments revolution, anticipated to witness a robust Compound Annual Growth Rate (CAGR) of 14.5% by 2025. Riding this wave, device financing is projected to boast a commendable CAGR of 12.8%.⁴
With escalating smartphone penetration rates coupled with rising disposable incomes, the conditions are ripe for sustained growth in this sector.
With device financing, users who tend to upgrade smartphones year after year can do so by trading the older version of devices for newer ones. Instead of buying it outright and generating e-waste, device financing helps in repurposing the devices traded in for new users.
Factors Influencing ROI in Device Financing: What’s Holding APAC Back?
Interest rates are the heartbeat of device financing’s impact on ROI. Even a mere 1% difference in interest rates can translate into substantial savings or expenditures over the financing period.
In this diverse and multifaceted market, where credit profiles vary widely, accurate customer credit assessment becomes pivotal. Understanding the lifecycle of devices and their depreciation curves empowers informed financing decisions, enhancing long-term ROI.
One of the major shortcomings that impact the ROI in device financing is missed payments. This could be deliberate or unintentional, but significantly impacts the ROI as well as the trust factor that OEMs have in certain geographies. A centralized credit scoring system is essential to ensure that missed payments result in some impact on the end-user, like an impact on credit score, for instance, to motivate timely payments.
However, in several countries within the APAC region, the concept of a centralized credit score system is either ineffective or absent in a literal sense. So while OEMs are eager to leverage the ever-increasing demand for smartphones and digital devices in the region, the lack of a centralized credit scoring system is deterring.
The Way Out: Strategies for Maximizing ROI
1. Customized Financing Plans:
Tailoring financing plans to individual customer needs fosters a sense of loyalty. By offering tailored payment plans (weekly, monthly or quarterly for instance), OEMs, finance companies and telecom carriers can expect a drop in missed payments.
2. Bundled Services and Accessories:
The concept of value addition thrives here. By offering complimentary services and accessories, not only is perceived value elevated, but the overall transaction amount also witnesses a surge, as is true for all financing. With digital devices such as smartphones, bundling them with SIM/internet services can be enticing for the users to obtain financing while ensuring that ROI is maximized.
3. Protecting underlying device costs with a DFRM solution
Digital Financing and Risk Management (DFRM) platforms such as NuovoPay have diligently implemented safeguards to counteract the potential misuse of smartphone financing schemes. By rendering financed smartphones virtually inoperable when subjected to misuse, these platforms serve as a robust deterrent to individuals with intentions to convert financed phones into cash.
In order to mitigate the risk of payment defaults, DFRM technology employs a proactive approach. It initiates the process by dispatching timely payment reminders to customers before the due date and subsequently follows up with overdue payment notifications, effectively encouraging customers to adhere to their payment obligations. In cases where payments remain outstanding, organizations possess the capability to remotely lock the device, thereby restricting access to calling and messaging functionalities.
Furthermore, the detection of a SIM card removal from a financed handset triggers an immediate response from financing providers. This action entails the prompt locking of the device and the limitation of phone usage, primarily to safeguard the financial investment. Importantly, this process is executed in a manner that maintains the integrity of the customer relationship, thereby minimizing the disruptions often associated with SIM card removal. In addition to its role in reducing delinquency rates, DFRM also plays a pivotal role in minimizing collection costs.
Moreover, DFRM platforms offer a noteworthy feature in the form of integration with multiple payment modes. This integration seamlessly accommodates mobile money platforms, allowing for device repayments through this integrated channel. This approach ensures that individuals can retain ownership of the device while concurrently engaging as active users of the mobile money platform, ultimately fostering financial synergy.
Conclusion:
In the ever-evolving Asia Pacific landscape, device financing unfurls as an opportunity brimming with potential to maximize ROI. By crafting tailored financing plans, harnessing the power of emerging technologies, and navigating the intricate maze of regulations, businesses can seamlessly tap into this burgeoning market, setting the stage for a future marked by prosperity and innovation.
Resources:
1) GSMA.com
2) Statista.com
3) Business-standard.com
4) Mckinsey.com
