The Benefits of Offering Handset Financing to Customers
Across the board, but especially in emerging markets, mobile network operators are eager to migrate customers from 2G to 4G. This migration moves customers off of outdated feature phones that bring in minimal revenue and equips them with smartphones that allow them to access a range of digital services and enjoy a superior customer experience.
However, the cost of upgrading from a feature phone to a smartphone has risen significantly over the years and, for many customers in developing markets, it remains prohibitive. Handset financing is a solution to this problem that allows customers to access smartphones and prevents MNOs from leaving revenue on the table.
Read on to learn more about the risks and benefits of offering handset financing to your customers.
What is Handset Financing?
The cost of smartphone devices continues to rise as new device developments, features and capabilities continue to be released. Customers want access to the latest smartphones with bigger screens, better memory and high-end cameras, but unfortunately many are unable to afford the cost of these devices.
Handset financing is effectively a method of bridging this divide.
Handset financing is a financial scheme in which a customer gets access to a smartphone device without paying the cost for it upfront. Instead, the customer pays back the cost in scheduled instalments over a stipulated number of months, generally ranging from 12 to 24 months.
Handset financing is an easy way for MNOs to upgrade existing customers and onboard new customers. It allows MNOs to win new customers and improve the customer experience of current customers.
But handset financing doesn’t come without risk and it shouldn’t be implemented without a full understanding of what it entails.
What are the Risks and Challenges of Offering Handset Financing?
Handset financing is built on implicit trust between an MNO and their customer. The MNO hands the smartphone over, trusting that the customer will pay back its cost according to the agreement. Unfortunately, with trust comes a certain amount of risk. In this case, the risk is substantial for MNOs.
As mentioned above, smartphone devices continually increase in cost. MNOs handing out smartphones through handset financing are taking on significant risk. If the customer defaults on a payment or stops paying for the device entirely, the MNO’s profitability is impacted.
If several customers simply stop paying for their smartphones, MNOs could suffer huge blows to their revenue through lost stock. It’s for this reason that many MNOs are hesitant to offer handset financing to customers. The necessary trust just doesn’t equal the weight of the risk.
Does this mean MNOs should give up on pursuing handset financing as a service? Definitely not! While there are risks, there are also benefits to implementing a carefully-planned handset financing strategy.
Why Is It Beneficial to Offer Handset Financing in the Long-Run?
Despite having its risks, offering handset financing to customers is still a lucrative means for MNOs to increase their bottom line and improve revenue. By offering up-to-date mobile devices, MNOs can win new customers and retain existing customers.
They’ll also reap the benefits of increased data usage thanks to customers operating from 4G devices, as well as customers having access to a wider range of ancillary services and product offerings, which will increase their spending.
MNOs who offer handset financing also position their brands as trusted and dependable service providers within the mobile communications industry.
Customers who receive devices from an MNO will develop trust in their brand and increase their customer loyalty. Handset financing can help MNOs develop and nurture long and successful relationships with customers.
How Should MNOs Approach Handset Financing?
The best way for MNOs to tackle the risk of handset financing is to mitigate that risk through a developed and levelled credit profiling plan. Instead of viewing handset financing as an independent service, MNOs should view handset financing as the endpoint of a larger, more comprehensive service offering: mobile financial services.
MNOs are hesitant to hand out devices to customers out of the risk of them defaulting on payments. By starting out with smaller product and service loans, MNOs can identify high-potential customers for handset financing.
Airtime advancements and mobile money lending can help to build individual credit profiles for each customer, which MNOs can use to make informed assessments about whether or not to offer a customer handset financing.
By adopting a levelled approach to handset financing based on incremental loans and credit profiling, instead of offering handset financing to every customer, MNOs can improve their service offerings, grow their customer base and drive revenue while assuming minimal risk.
The best way for MNOs to not take on any risk when offering handset financing is to outsource that risk to an external mobile financial services provider. Airvantage is one of the largest service providers to mobile network operators across Africa, specializing in services such as:
● Advanced airtime and data lending
● Mobile wallets and mobile money lending
● Handset financing
● Financial identity as a service (FiDaas)
Our extensive credit access means that we take on the risk while you reap the benefits for your business.
If you’d like to learn how Airvantage can help you to launch handset financing as a service to your customers, book a consultation with us and we’ll help you get where you want to go.