Games of Phones

Every time Apple releases a new iPhone, carriers brace themselves for a “supercycle” – a seismic event in telecom when hundreds of thousands of consumers switch networks in order to get their hands on the latest iPhone.

In order to win this “game of phones”, carriers compete to offer customers the best deal.

You can see this strategy in action right now. AT&T and T-Mobile are giving away the iPhone 16 Pro “on us” and Verizon is offering customers a generous $1000 discount (although naturally this benevolence comes with a few caveats).

Carriers have good reason to be bullish in their marketing tactics.

New iPhone installment plans run for several years and come bundled with only the most premium mobile subscriptions. By the time customers reach the end of the installment period, they have more than repaid their debt. Even then, many will remain on the network for years to come. It’s a fantastic way to acquire new customers and drive profit.

Of course, carriers are not the only players to offer smartphone financing. Nubank is now offering its premium customers an installment plan for the iPhone 16, Klarna has just become an official Apple reseller, and phones are top of the list of products purchased through Buy Now Pay Later companies.

But carriers are the only ones to capitalize on financing models that keep customers locked into long-term phone contracts. This model allows them to offer phones at 0% APR or even for “free”, giving a broad range of customers access to the latest devices. As a result, 18% of all US smartphones are purchased through carriers – that’s a huge chunk of a massive market.

The question is: Now that some of the world’s largest fintechs and neobanks are venturing into telco, will they soon start using phone financing to acquire their own mobile subscribers?

Will fintechs join the game of phones?

The fintech wars

The world’s largest fintechs – Chime, Klarna, Nubank et al. – owe much of their staggering success to the broad appeal of their financial products. Features like early pay-check access, pay later shopping and fee-free overdrafts have struck a chord with customers in a way that incumbent banks and credit card companies have, for years, failed to do. By combining these products with a world-class user experience (UX), fintechs have collectively amassed tens of millions of customers in short order.

But with so many neo-players vying for a spot in our digital wallets, the pressure is on fintechs to innovate. In order to continue growing and engaging their user-base, they must develop new services with high perceived value and mass appeal.

Smartphone financing delivers on all fronts.

Smartphones are a special asset class. When it comes to houses or cars, the difference between the top of the market and the mean is enormous – think of a Bugatti or a Central Park-bordering flat. But, with phones, everyone wants the latest, most premium device. Everyone wants the Bugatti.

By financing smartphones, fintechs can tap into this latent demand, attracting millions of customers and driving unprecedented platform loyalty. But to fully harness that potential, they must play the carriers at their own game.

A “free” phone will always be more appealing in the eyes of consumers than a phone purchased on credit, even if that credit comes with low or no interest. It’s the freemium model that tempts consumers who would otherwise balk at the price of the latest iPhone, and it’s this model that allows carriers to offer pseudo-credit to such a broad demographic.

Of course, the model only works if you can ensure the long-term loyalty (and value) of your customers, which is why the combination of phone financing and mobile contracts is so powerful.

As the fintech and telecom industries collide, it will be interesting to see which fintech will be first to launch a smartphone and mobile plan bundle.

Banking and telco: The ultimate alliance

Banking and telco share striking similarities. Like traditional banks, incumbent networks have dominated for decades, despite their terrible NPS scores, due to a lack of innovation and competition in the industry.

But today, that’s all changing.

Just as embedded banking enabled countless businesses to capitalize on financial services revenue, the rise of embedded connectivity is empowering new players to launch mobile services that challenge the status quo.

Modern telco APIs have cut the red tape and logistical headaches of launching a mobile service, enabling companies to embed phone and data plans natively in their products in a matter of weeks.

T-Bank and Toss are examples of pioneers in this space, having launched their own mobile service offerings. But, so far, the combination of phone financing and mobile subscriptions remains an untapped opportunity for neo-players.

With their track record of rapid innovation and their deep understanding of consumer spending behavior and credit underwriting, fintechs are perfectly poised to take this next step. By launching a smartphone/mobile bundle to rival traditional carriers, they too can capitalize on major smartphone launches and turn millions of customers into loyal subscribers.

Let the games begin.