We know that the concern for mobile operators, financiers and retailers is that, by providing more device financing to more customers, they will increase their commercial risk when customers default on payments or abuse the terms of a plan. And, given that 10% – 15% of customers do not pay their bills, these costs can be significant. According to the Risk & Assurance Group’s Revenue Assurance and Fraud Management survey, $14.2 billion is lost to communications providers and their customers.
In the more mature markets, this is less of a problem due to well-established finance practices such as credit-scoring and reporting, all designed to minimise the risk. However, these strict criteria can make it challenging for mobile operators to attract and grow their customer base, and rejection rates for higher-end financed devices remain high, with some operators reporting a 70% rejection rate during device-led promotions.
In markets where established credit practices do not exist, there is a greater need for an effective, low-risk solution that balances customer affordability with commercial appetite. When credit is available, it is often expensive or has punitive fees. Some countries have a predominantly cash-based culture, in which 40% to 50% of the population have no bank account meaning there is very little credit information about customers, which presents problems for operators in these markets. To offset the 30% to 40% loss they expect to make, operators may inflate the cost of devices which has an adverse effect on attracting customers.