Sriram Kakarala is the Vice President of Products at ProMobi Technologies. He carries with him immense experience of more than 17 years in developing mobile applications. Being an engineer at heart, he holds expertise in developing ingenious products from scratch. One such product is Nuovopay, a cloud-based platform for financial institutions and telecom carriers that simplifies smartphone financing with an assurance of timely EMI repayments.
The smartphone industry is facing increasing obstruction from several fronts – inflation, geo-political tensions, global semiconductor chips shortage and ongoing supply chain constraints. Adding expensive hardware components and intellectual property charges in the mix increases the cost of 5G smartphones.
That brings the global average selling price (ASP) of a 5G smartphone to USD 608, according to the market intelligence firm, IDC. By contrast, the ASP on 4G smartphones is spiraling downwards. As the market shifts towards 5G smartphones, experts estimate the 4G ASP to be USD 170 this year, dropping to USD 113 by the end of the year. 
Yet, for billions of people around the world, smartphones remain too expensive.
Affordable Smartphone Ownership
In low to middle-income countries, the ability to purchase a smartphone varies substantially within different income groups. The group of people at the bottom of the pyramid, often without reliable income, need to make major trade-offs to even afford a basic feature phone.
Although consumers can gain access to the internet on a feature phone, such models have limited internet browsing and cannot provide the rich experience of sophisticated mobile applications on smartphones.
Moving up the socio-economic group, the working people with low-income jobs find it difficult to make payments upfront but could afford to pay in installments. Conversely, middle-income customers can afford entry-level smartphones through upfront payments.
Contrary to popular belief, this digital divide isn’t limited to low and middle-income markets. In the United States, roughly 25% of adults from lower-income households don’t own a smartphone. 
With little to no options for online access at their disposal, consumers globally are relying more on smartphones. That’s because smartphones have become more essential for daily life.
Upfront Fees: Barrier to Smartphone Affordability
Smartphone affordability is influenced by a range of factors such as manufacturing costs, market competition, consumer preferences, and the average household income in a country.
Government initiatives and policymakers can make smartphones more accessible by reducing taxes that apply to entry-level smartphones. The cost-saving is passed down to the consumer, bringing down prices.
Special tax exemptions for mobile devices sold at certain price points can encourage manufacturers and retailers to drop prices to qualify for the tax break and drive competition in the low-cost mobile phone market.
Telecom carriers also play an important role in closing the digital gap. The bankable subsidy model–telecom carriers subsidize handset purchases in exchange for long-term contracts–has led the way to growth in mature countries.
However, consumers often need to pay an upfront fee, depending on the handset. Customers from emerging markets may still not be able to afford the upfront cost of the device. For instance, the average smartphone cost in low to middle-income countries like Tanzania and India is approximately 16% of income for people on less than two USD per day. 
One crucial way to make smartphones more affordable to low-income groups is to develop and scale innovative financing models to reduce the upfront costs.
Smartphone Financing: A Key to Close the Gap
Smartphone financing enables people to obtain a smartphone by paying it off in monthly installments. Unlike the subsidy model, the handset cost is split from the cost of service and does not involve an upfront fee. At the end of the contract period, the customer has paid off the full cost of the device.
Smartphone financing is different from smartphone leasing. Device leasing allows customers to use smartphones for a set period, while financing allows them to own the phone at the end of the payment term.
Making the purchase price more manageable through smartphone financing is potentially the most meaningful support that can be provided to low to middle-income groups. Breaking up the upfront cost of the device into manageable sums across the length of the payment period should steadily drive demand for smartphone affordability.
Limitations to Smartphone Financing
Although the mobile device financing model benefits buyers, there are certain limitations, especially for the sellers–telecom carriers, manufacturers, retailers, and financial institutions.
Monthly payment defaults are a significant and costly problem for smartphone providers across the globe. Non-payment not only costs sellers millions in lost revenue each year, but adds unwelcome expenses while trying to recover the debt.
The lack of credit history increases the risk. The World Bank estimates about 1.7 billion people across the world are unbanked, indicating the absence of formal credit history. The lack of payment surety is one of the main reasons why sellers are hesitant to offer smartphone financing options to the underserved population.
Lack of digitalization is also giving rise to poor financial performance in handset financing. Smartphone providers currently do not have an assurance mechanism that can protect their revenue against payment default.
Technology to Accelerate Smartphone Financing
Technology can help sellers focus on three main areas: reducing monthly payment defaults, low-cost debt recovery, and accepting more customers.
Non-intrusive software present in every financed smartphone increases the willingness of customers to make their payments on time. It can range from timely reminders of upcoming payments to full-screen warnings on the payment’s due date.
When customers default on payment, sellers can take maximum measures to recover payments. The most severe step can be a locked screen. Customers can still have access to essential features such as emergency calling but are restricted from using most apps.
In addition to ensuring payments, smartphone financing technology can also cut costs. The platform is automated and sellers will not need to invest in recovery agents. Smartphone providers can confidently expand their customer base and enable people without risking bad debt.