5G, the next generation of mobile connectivity, has arrived. The growth of 5G has been faster than any other wireless standard before it, enjoying strong adoption across key markets like China, the US, and Europe. In Q1 2021, just two years after the launch of the world’s first commercial 5G network, almost one out of every three smartphones sold was 5G. 
The proliferation of 5G smartphones around the world can be attributed to the increasingly established mid-range smartphone market. Over 650 5G smartphone models have been launched, accounting for 50 percent of all 5G devices by form factor.  But 5G smartphones can still be expensive.
According to a report by IDC, the average selling price of 5G smartphones in 2022 will hover around USD 608, and by the end of the year, increasing sales volumes will bring down the average price to USD 440. Such price points are still more expensive than 4G smartphones, positioning most 5G mobile devices under the ‘affordable premium’ category.
Smartphone Financing Benefits Buyers and Sellers
The allure of ultrafast connectivity and low latency of 5G may fall short, especially for customers from emerging markets, when it comes to price. Many customers will be disinterested in the high prices and push their purchase decisions. Technology is only as strong as its adoption, and smartphone financing can help drive 5G adoption globally and bring the technology to the masses.
Smartphone financing makes it easier to manage costs. Instead of paying upfront or receiving a subsidy, customers can pay for the 5G smartphone over fixed monthly periods. Financing terms may vary depending on where customers are buying the phone and how much they are paying. It is available through retailers, telecom carriers, mobile phone manufacturers, and buy now pay later (BNPL) platforms.
It can particularly help telecom carriers manage their subsidy budgets. Rather than subsidizing 5G handsets to attract new customers, telcos can finance the device over monthly payments. The cost of a smartphone can be amortized across the 24-month or 30-month period of the contract.
Verizon’s monthly installment payment program lets customers pay for mobile devices over a specified period with 0% APR and no finance charges or customer agreements. 
A Key Driver for Smartphone Financing: Technology
While smartphone financing may encourage customers to migrate from 4G handsets to 5G smartphones, it is not as straightforward for telecom operators. Cash flow would be a key challenge in smartphone financing.
Telcos need to pay OEMs for their phones within 30-90 days, while customer payment plans span 24 months. With the current average selling price of 5G smartphones close to USD 600, this applies significant pressure on the carrier’s balance sheet.
By providing more smartphone financing to more customers, telecom carriers increase their commercial risk when customers default on monthly payments or misuse the terms of the plan. According to the Risk and Assurance Group Digital Trust survey, improper revenue assurance is costing telecom carriers sizable revenue. In 2021, communication providers lost USD 31.5 billion to bad debt. 
Addressing the problem of customers not making their monthly payments on time requires high follow-up costs in collection efforts and acquisition commissions that set high overheads on telecom operators.
In developed markets, managing payment defaults is a minor problem due to established financial practices such as credit scoring and reporting. However, such strict regulations can make it challenging for telecom carriers to grow and attract a customer base. New-to-credit customers also face higher rejection rates because of a lack of credit history.
Conversely, for growing markets that present a commercial appetite for 5G smartphones, a significant portion of the population does not have a bank account or lacks credit information, meaning more opportunities and more risk for telecom companies.
Technology can be a key differentiator in successful 5G smartphone financing. Because technology can enable telcos to put device financing controls in place to mitigate non-payment and handset fraud.
Telecom companies can leverage device management tools created for credit providers. The tool remotely restricts access to finance 5G devices if 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.
Deployment of such risk mitigation technologies can influence debt repayment among customers, and increase their willingness to make payments on time, thereby reducing default rates and non-performing assets.
The remote technology reduces the cost of collection by implementing customized payment messages on phones. So, telcos can remind customers to pay on time, increasing telecom revenue assurance.
Such mobile enablement platforms should not only be adopted by telecom carriers alone. With technology, OEMs, retailers, and financial institutions that offer smartphone financing can protect their assets while unlocking the accessibility of 5G smartphones to the masses.