Loan against Smartphones - Can it be a reality ?

Background on Smartphones market dynamics

IN the recent years, mobile phones have turned out to be one of the best inventions by men. Today, its difficult to think about life without a mobile phone in hand. Smart phones have given different meaning to most of the activities these days, be in banking, travelling, personal upkeep, keeping in contact and so on. All type of companies are coming up with mobile apps to move their operations and reach to customers through smart phones.

From the earlier years, where the phones used to cost a couple of thousands they have become much more smarter, sophisticated and also expensive. There are certain brands of phones which have become status symbols and products of aspiration.

Some flagships phones like Apple  iphones, Samsung galaxy S series, HTC One series cost equivalent to the cost of a two wheeler like bike or a cost of trip for a family. For that matter, a middle class family can setup their home in a cost of a single flagship phone. To give a perspective, any of these phones cost more than INR 50,000/- and many bikes from Honda, Hero, Suzuki, TVS also cost the same. Similarly, a 32 inch TV (INR 15,000) plus an automatic washing machine (INR 10,000), a refrigerator (INR 10,000), a mixer grinder (INR 2,000), a home theatre system (INR 6,000) and a tablet (INR 7,000) would sum up and make a cost of one flagship smartphone.

Innovation in Finance

Understanding the above market dynamics and the consumers aspirations in mind, the banks also jumped into the craze of smartphones and have come up with EMI schemes to finance these phones. And as the statistics reveal, they are doing a good business in that.

With the kind of amount spent to buy these high end phones, they are as good as any other electronic asset. And I feel it’s time for the banks to be more innovative and look at financing against these phones. The mobile companies like Apple already have buyback schemes in place for their older phones. In the market, these phones command good resell price for the initial 1 – 1 ½ years of their life.

Benefits and Features of the product:

Banks can work on a product for Loan against Smartphones. IT will have following benefits and features:

-          Immediate liquidity to the consumer

-          Short term credit extension by bank

-          Relatively safer then unsecured personal loans

-          Tie up with mobile and telecom companies for rolling out innovative products

-          Short term lending for say 2-6 months

-          Money can be paid by the customer in EMIs

-          The loan can be on rolling basis, depending on the current condition and current selling price of the phone

Safety and Security Precautions by Bank

There are certain inherent risks while considering mobiles as an asset:

-          Mobiles being daily use items, they are very prone to damages.

-          Market is flooded with fakes.

-          Customer selling off the mobile or running away without paying the money

Though these risks exist in offering loan against smartphone product, most of these risks are common  to providing EMI for phone purchase well. Risk of fake mobile can be mitigated by proper validation of IMEI no and validation by the manufacturer. Risk of damage can be mitigated by insurance and other such steps can be taken by banks to insulate themselves from risks.

Conclusion

The above thoughts might just be a good idea on paper currently, but changing market and consumer preferences do play a major role for the banks to decide on the products on offering. Overall, it becomes imperative for the banks to launch products by keeping market trends in mind. These might seem to be risky or non-profitable initially, but just might end up giving good volumes and profits to the banks.