Handset Finance – What Network Operators Need To Know

Handset financing is a contentious issue within the mobile network operating industry. Everyone is talking about it and everyone wants it, whether they’re an MNO or a customer. It’s not hard to understand why. 

From an MNO’s perspective, handset financing is a lucrative, low-risk means of onboarding new mobile customers or upgrading existing customers. Customers also love the idea of receiving a mobile device without the hefty up-front price. 

Despite its obvious benefits, handset financing is not as easy to procure from airtime and data suppliers, or financiers, as one might think. Often, MNOs assume it’s a simple turnabout solution to implement, but the reality is far from that. 

So should MNOs give up on handset financing as a means of revenue generation? Definitely not. Handset financing is a viable means for MNOs to increase their revenue, but the “how” is a little more complicated than the “why”. 

Let’s take a closer look at why this, and how MNOs can use handset financing to their advantage.

How Handset Financing Works

Handset financing is a financial scheme that allows customers to get the latest smartphone now and pay for it later in instalments spread over months (generally speaking, around 24 months). 

In theory, a customer can walk into an MNO’s store and get a 4G mobile phone worth R5000.00, having paid a down payment and signing a contract agreeing to pay the excess in scheduled instalments. The customer then walks out with a brand new phone, and the mobile operator wins a new customer. 

Sounds simple enough, right? Not quite. 

The reason why securing handset financing from a mobile financing company isn’t that easy is the same reason MNOs themselves are hesitant to hand out mobile devices to customers: it all comes down to risk. Namely, who takes on that risk.

Anytime something is loaned on credit, including mobile devices, the loan is contingent on the credit record and score of the customer. It makes sense then that financiers are hesitant to offer handset financing to customers whose records are unobtainable or, worse, don’t have any record to speak of. 

When it comes to handset financing, the crux of the issue is this: handset financing is not a viable standalone offering. It’s the final phase in a gradual customer financing journey. 

MNOs who want to offer handset financing to their customers need to understand that most mobile financiers take customers on a journey that begins with lending small amounts of advanced airtime, moving onto larger amounts of mobile money lending, which then arrives at the endpoint of handset financing. 

Financiers can only offer handset financing at this point, where the customer’s risk has been adequately assessed and approved. MNOs who want handset financing need to be willing to use the learnings from airtime lending and mobile money lending to reach handset financing as the third and final phase. 

How Do MNOs Benefit From Handset Financing?

Although it’s not as easy to get as commonly thought, MNOs can still benefit greatly from offering handset financing to their customers. While they won’t be generating too much profit from the actual financing of handsets to customers, the payback will manifest in other ways.

Customers taking on new smartphones will be migrating from 2G to 4G. The spectrum release that comes with leaving 2G can then be re-farmed into 3G and 4G, which increases customers’ data usage. Increased data usage, of course, translates into increased ongoing revenue for MNOs.

Through handset financing, you can expand your reach to customers who might not have the means to purchase a new mobile device. You can increase your customer base and encourage customer loyalty by offering additional deals and offers that come with their device. 

Though handset financing is not a standalone service, it’s a viable, lucrative endgame that enables MNOs to drive revenue, win new customers, and sell additional data and services. By investing in services like airtime advancement and mobile money lending from financiers, MNOs can do their due diligence on customers and work their way up the ladder to the gilded, final destination of handset financing. 

At Airvantage, we offer handset financing and we have the ability to manage credit risk. If you’d like to find out more about our services, including handset financing, contact us.