Why Financing is a Game-Changer for the Flagging Telco Industry

Could financing be the answer to reigniting the telecommunication companies’ relationship with consumers?

Financing a customer’s phone isn’t what it used to be for telecommunication (telco) companies.

Subsidizing purchases of mobile devices, modems, and other costly technologies has, until now, helped telcos attract and retain customers for longer periods. But this model is quickly becoming unsustainable, as customers seek alternative ways to make their purchases. Or sometimes others choose not to buy a new device at all.

 

Why are phone sales declining? Perhaps some consumers are tightening their purse strings in an uncertain economy or they are being put off by increasing prices. Or maybe they’re not motivated by what have become incremental technological improvements. The reasons for which are many and complex. But if smartphone innovation has foundered, it’s important for telcos to get creative with their offerings and payment models.

 

A host of new technologies are emerging with promises to boost the flagging telco industry. But to entice customers to buy – and to buy from you – your telco must make paying for your goods and services easy and even enjoyable.

Telcos are already doing many things right

Telcos have long financed their customers’ phone purchases, enabling them to make monthly payments, commonly with zero interest.

 

Because telcos bear the costs of the loan, they’ve had to limit the terms, usually requiring full payment within one or two years. Every instalment-plan dollar is payment the telco must wait to receive for the products it sells. The difference affects its balance sheet.

 

Meanwhile, the price of new phones continually rises. Unable to afford the higher monthly payments these costly purchases require – especially in a tight economy — more people are opting to keep their mobile phones for longer periods.

 

Emerging technologies such as virtual and augmented reality and smart home appliances could offer telcos new sources of revenue. But if one new device is unaffordable on the offered payment plan, having more than one might be out of the question under a current financing model.

 

To entice people to buy, a telco may want to meet customers where they are with affordable and flexible payment plans. If consumers could finance purchases over five or ten years, how many more buyers would telcos draw?

 

And allowing longer payment periods supports the environment, as well: people may naturally tend to hold on to their electronics while they’re paying them off. Sustainability is a growing concern with companies and customers around the world.

5 major benefits of flex financing

 

 

Being more affordable and attractive to customers is a primary reason why telcos must adopt more flexible financing models. This more-expansive way of doing business offers a host of other advantages, too, including:

 

        • A boosted balance sheet. Companies that offer flexible financing tend to do so by partnering with banks, which finance the loans so that telcos company don’t have to. Using this approach, telcos can get paid in full at the time of purchase instead of having to front the money to customers from your own accounts. And you transfer the approval process and lending risks to the bank.

       

      • More service and device sales. Customers that pay off purchases over longer periods are more likely to spend further on additional products and services.

 

  • Greater customer loyalty. Giving customers more options – for instance, allowing them to make payments on their mobile phone independently of their service contract, or to choose a month-to-month or SIM-only plan for a phone they already own – makes them feel empowered rather than constrained by their contract. When they’re with you by choice, they’re more likely to remain with you.

 

  • Added revenue streams. Unbundling SIM from phone purchase from service plan allows telcos to do more for customers. Cybersecurity, edge computing, cloud computing, artificial intelligence – you’re limited only by the innovations that continually emerge in tech.

 

  • Competitiveness. Telco companies need to stay in tune with what customers want and need. To stay competitive, it’s essential they not only keep up with competitors, but get ahead with innovative business models.

Customer experience is key

A growing number of telco startups and long-established upstarts are vying for telco business and, in the process, changing the nature of the industry.

 

From three-minute financing pre-approvals to always-on customer support, making the customer’s experience smooth from end to end should be a primary goal for any telco financing program.

 

When designing or revamping your financing model, consider these key factors:

  • 1.

    Make financing omnichannel. Choose a partner that has the technology and the savvy to make the entire application and contracting process friction-less, no matter how many devices the customer uses.

  • 2.

    Know your customer. Not every buyer will want to use financing or to provide their personal data to a bank. Make sure these customers have as pleasant a purchasing experience as everyone else.

  • 3.

    Two different highway lanes for vehicles with different speeds. Each project stream has to go at its own speed, splitting between what requires waterfall approach (e.g., regulatory activities) with respect to Agile (e.g., explore phase)

  • 4.

    Make it personal. Use data, analytics, and artificial intelligence/machine learning to optimize your financing offerings to everyone. Some may not qualify for pre-approval, for instance; for them, partial financing might be best.

  • 5.

    Get it right. Consider how well the process works for customers and refine where needed. Use marketing techniques to understand why prospects drop off, for instance, and see how you can correct.

    Make financing a service too

    Telcos have already done the work required to attract and retain customers. Letting buyers make payments for their devices, along with their monthly service bill has made doing business more convenient and affordable – but it’s no longer enough.

     

    Now it’s time to give financing device purchases the same level of attention as other service telcos provide.

     

    A financing-as-a-service (FAAS) platform may be the best solution. Properly designed, this platform should bring the appropriate financing partner into the process at the appropriate stage. Platform will enable telco integrate financing capabilities: loan approval/processing/execution, KYC & credit scoring, loan monitoring, regulatory compliance and more with limited implication to existing core services.

     

    Make sure to choose a platform that considers customers’ wants and needs at every step, from initial browse through the sale, and post-purchase.

     

    Used in this way, you can FAAS-track your telco to continued success, and everyone in the game – your company, your finance and business partners, and your customers – walks away a winner.

    About the Authors

    Michal Panowicz

    Managing Director and Partner

    Michal Panowicz is a Managing Director and Partner in the London office. He is a globally recognized leader in digital transformation of Banking.

    Michal began his career for BCG in Warsaw in 1998 where he became a senior consultant until 2004. He re-joined BCG in 2018 as Partner and Director in TA practice, London following time at Microsoft, M Bank (Deputy Head of Retail & SME), Kreditech (CPIO) and Nordea (SVP, Group Head of Digital).

    His proven track record of visioning, developing, marketing and monetizing of omni-channel in banking and insurance has been underscored by numerous global innovation awards and trajectory-changing business results in customer acquisition, experience and cross-selling.

    Michal has built a strong global reputation across FI and TA and is considered the “go-to” expert across New Challenger Bank Builds, Digital Sales and Digital Transformation themes.

    Roman Friedrich

    Managing Director and Partner

    Roman is a Partner in the Düsseldorf office. He is a member of the TMT practice area, specializing in telecommunications and digitization. Prior to joining BCG, he worked as Managing Director at AlixPartners for almost two years. Before that position he worked for more than 20 years for Booz Allen Hamilton/Booz&Company/Strategy& out of Munich, Düsseldorf and Stockholm leading the global TMT practice. Roman holds a PhD for theoretical particle physics from the University of Tuebingen/Germany. His main areas of expertise are growth strategies for telecom operators, digital transformation for telecommunications companies and digital operating model development across industries.

    Sherif Choudhry

    Managing Director for EMESA Digital Products and Services

    Sherif’s background is in helping clients develop new product/service lines and revenue streams through innovative product, design and technology engineering.

    He is driven by his passion for catalysing breakthroughs in customer/employee experience by building stimulating environments for diverse, multi-skilled talent to solve the challenges of tomorrow.

    Santiago Dymensztein

    Project Leader

    Santiago is a Project Leader at BCG’s London office and is a member of the Financial Institutions and Digital practice areas. As a core member of BCG’s InQbate Digital Banking Capability and CoE, he supports clients in the FI space around the globe in defining their digital strategy, building their solutions and marketing their products.

    Anmol Gupta

    Platinion Principal IT Architect

    Anmol is an expert for data analytics and modern IT architecture. With a background as an architect working across the globe with various industries, he supports clients designing the digital solutions and governance model to enable launching new business ideas.

    Graham Allinson

    Platinion Product Lead

    Graham is focused on facilitating the design, build and launch of break-through Digital Products & Services. His background spans product strategy, early stage experimentation and MVP builds, through to delivery of large scale digital transformations in complex global organisations. His industry experience includes Public Sector, Retail, Financial Institutions, Telecoms & Technology.