The popularity of smartphone financing has been on the rise in recent years, due in large part to the increase in the average selling prices (ASP) of smartphones. With the ASP of premium smartphones reaching USD 780, many consumers are finding it difficult to afford the upfront cost of purchasing a new handset.
To make these high-priced devices more accessible, many manufacturers, telcos, and retailers have begun smartphone financing options, allowing consumers to spread the cost of the device over a period of time.
What is Making Smartphones Expensive?
There are many reasons behind the high uptick in smartphone prices.
- Global shortage of smartphone components – Smartphone prices have started rising because of the global shortage of semiconductor chips and the higher cost of components.
- Rising prices of smartphone components – According to McKinsey, 5G phones are 20-30% costlier to produce than 4G models. This is due to the more expensive modem and frequency components needed for 5G handsets. The higher chipset prices will, in turn, increase the ASP of smartphones that support 5G.
- Inflationary pressures – As inflation pressures increase, the input costs spiral upwards. Thus, as the cost of manufacturing handsets goes up, it becomes unviable for companies to maintain margins, which are eventually passed to the consumers.
- Demand for new features – One of the main reasons for the increase in the ASP of smartphones is the constant introduction of new and advanced features. As technology continues to evolve, manufacturers are adding new features such as larger screens, better cameras, and more powerful processors to their devices. This has led to an increase in the cost of producing these devices.
Additionally, the trend of people wanting to keep their smartphones for longer periods has also driven up the ASP as people are willing to pay more for a phone that will last.
Demand for Smartphone Financing Surges
Consumers prefer to buy handsets using smartphone financing schemes as they don’t have to pay upfront, helping them manage their finances and budget. Smartphone financing also helps consumers move up the price ladder, enabling them to purchase smartphones in the premium segment. Making equal monthly payments spread out over a few months is a convenient solution for many consumers to purchase an expensive handset.
“One out of three smartphones sold in India are bought using smartphone financing plans.”Tarun Pathak, Research Director, Counterpoint Research
The rise of smartphone financing has also been driven by increased competition among manufacturers and retailers. With so many companies vying for market share, many have begun offering financing options to attract customers. This has led to a wider range of financing options available to consumers, making it easier to find a plan that works for them.
Smartphone financing plans have also evolved over time. Retailers are offering device payment programs with zero down payments, zero percent interest, and cashback offers. With the ASPs expected to go up further by a few percentage points, upfront offers and discounts work better in emerging markets.
For example, Samsung India leveraged smartphone financing plans to push its portfolio of premium smartphones in 2022. To monetize telecom services, especially 5G services, telcos are working with financing companies to spur feature phone to smartphone conversion. Additionally, telcos are working with OEMs to offer upfront discounts to make smartphone phones appealing to consumers who own feature phones.
However, it is important to note that financing a smartphone can come with certain risks. If a consumer defaults on payments, organizations run the risk of carrying bad debt.
Payment Defaults Add Undue Financial Stress
Payment defaults arise when consumers no longer pay their monthly installments as per the financing plan. This has a negative impact on the provider’s–telco, retailer, or financing institution–profitability. Put simply, when the volume of payment defaults reaches a tipping point, companies can no longer afford to issue new smartphone financing plans to consumers.
Can Device Financing Technology Reduce Payment Defaults?
Smartphone financing providers can ensure timely payments by using mobile device financing management tools like NuovoPay. NuovoPay remotely restricts access to handsets when customers do not make payments on time. Although the mobile phone is restricted, basic functionality, such as emergency calling and access to settings, will still be available.
Leveraging such risk mitigation technology has proved to influence debt repayment among consumers and increase their willingness to make payments on time, thereby reducing default rates.
By working with NuovoPay, smartphone financing providers derisk their smartphone loans and ensure regular payments. To know how NuovoPay works, please click on the article below