Apple Scraps Plan to Sell iPhone on Subscription Basis

Apple Inc. has dropped Apple Scraps plan to launch an iPhone hardware subscription service, a move that marks the latest twist in its approach to payment services. The decision signals the challenges of introducing new financial models and navigating regulatory complexity in a highly scrutinized industry.

Here is a detailed look into the project’s inception, challenges, and why it was ultimately shelved.

What Was the iPhone Subscription Service?

The idea was to change the purchase process of iPhones for customers. No more upfront payments or installment plans; instead, they would pay a monthly fee, which would be charged to their Apple account. The customers could then receive a new model of iPhone every year and hence own an iPhone by subscription, just like subscribing to an app or service.

This would have provided Apple with recurring revenue and tighter integration into its product ecosystem. It would have also replaced existing programs, including:

iPhone Upgrade Program: Currently offering two-year installment plans via Citizens Bank.
Apple Card Monthly Installments: Available only in the U.S. through Goldman Sachs Group Inc.

Apple Scraps Plan: Why Was the Service Canceled?

The project had several setbacks that made Apple wind it down despite its potential.

1. Regulatory Concerns

Apple feared being criticized by the regulators. More so after the U.S. Consumer Financial Protection Bureau tightened regulations for “buy now, pay later” services. This new set of rules requires “buy now, pay later” services to comply with the credit card regulations. Therefore, the compliance will increase.

2. Technical and Operational Challenges

The subscription service used Apple’s in-house financial infrastructure, like the now-defunct Apple Pay Later program. Software bugs and logistical issues had already pushed the project back multiple times.

3. Market and Partner Dynamics

The subscription model threatened to alienate Apple’s wireless carrier partners, who rely on installment plans and promotions to sell iPhones and retain customers. Competition with these partners could have compromised long-standing relationships.

Apple Scraps Plan: Apple Pay in the Project

In keeping with those broader ambitions, the iPhone subscription service had initially been part of Apple Pay, with Jennifer Bailey acting as the top deputy to services chief Eddy Cue. Over time, the group that works on Apple Pay has wanted to develop its own in-house tools and be less reliant on outside financial partners through a line of work like “Project Breakout.

However, regulatory complexities and operational hurdles have thwarted these efforts. For example, the Apple Pay Later program, which provided installment-based payments, was also shut down due to similar regulatory pressures.

Apple Scraps Plan: Can the Subscription Model Make a Comeback?

Although Apple has canceled its plans, the revival of the iPhone subscription service through partnerships with financial firms like Affirm Holdings Inc. or Klarna Bank AB is still possible. For now, Apple is focusing on alternative payment options within its Pay service.

Apple Scraps Plan: Impact on Apple’s Business Strategy

Cancellation marks a cautious approach towards Apple’s strategy, but more so in the overregulated financial industry. When it comes to subscription-based services, the risks involved overrule the potential benefits when relating them to iPhone sales and resultant recurring revenue.

Apple still takes steps to explore innovative business models, but for the moment, it seems focused more on the optimization of its currently offered services and relationships built with partners.

FAQs

1. What is an iPhone subscription service?

It was a plan to let customers pay a monthly fee for iPhones, allowing them to upgrade to the latest model annually.

2. Why did Apple cancel the service?

Regulatory concerns, software challenges, and potential conflicts with carrier partners led to the cancellation.

3. What existing programs does Apple offer for iPhone payments?

Apple offers the iPhone Upgrade Program through Citizens Bank and Apple Card Monthly Installments via Goldman Sachs.

4. How does this cancellation impact Apple Pay?

Apple Pay continues to work with third-party partners like Affirm and Klarna for pay-later services but has shifted focus away from in-house financial models.