Apple scraps effort to offer iPhone via monthly subscription model

By Mark Gurman

 

Apple Inc. has halted work on a project to build an iPhone hardware subscription service, according to people familiar with the matter, retreating from an attempt to change the way consumers buy its flagship device.

 

The idea was to make owning an iPhone like subscribing to an app — with consumers paying monthly fees and getting new phones each year — but Apple recently wound down the effort, according to people familiar with the matter. The team was disbanded and reassigned to other projects, said the people, who asked not to be identified because the work was confidential. 

 

The move is part of a broader shift in how Apple approaches payment services. The subscription effort was overseen by the company’s Apple Pay group, which also shuttered a “buy now, pay later” program earlier this year. That service let shoppers pay off purchases over multiple installments, but Apple is now steering consumers toward third-party programs instead.

 

Bloomberg News first reported on the iPhone subscription service in 2022, when the program was due to launch by the end of that year. It was ultimately delayed until 2023 — and beyond — after suffering numerous setbacks, including software bugs and regulatory concerns. Top company executives had sent the work back to the drawing board before the project was finally scrapped.

 

A representative for Cupertino, California-based Apple declined to comment. 

 

When Apple began work on the hardware subscription service a few years ago, it was aiming to sell more iPhones and generate a greater amount of recurring revenue. The device is Apple’s biggest moneymaker, accounting for just over half of annual sales. The company also wanted to further lock users in to the Apple product ecosystem.

 

It would work like this: Instead of paying for an iPhone outright or signing up for an installment plan, customers would have a monthly fee billed to the same Apple account they use for downloading apps and subscribing to services. They’d then be able to swap out their iPhone for a new model each year.

 

Like the now-defunct Apple Pay Later program, the hardware subscription would use an in-house financial infrastructure and be based on loans provided by the company itself. Early this year, Apple deployed the iPhone subscription service as a test for employees within its Pay group. Teams working on App Store billing and the online store were also involved.

 

The service would have competed with — and likely upset — Apple’s wireless carrier partners, which increasingly rely on installment programs and promotions to sell iPhones and retain customers.

 

It also may have replaced two programs long offered by Apple itself. That includes the iPhone Upgrade Program, which splits up the cost of a phone over two years and is backed by loans provided by Citizens Bank NA. The other is Apple Card Monthly Installments, which is handled by Goldman Sachs Group Inc. and is only available in the US.

 

The Apple Pay organization is led by Jennifer Bailey, a top deputy to services chief Eddy Cue. The group has sought to expand the company’s services revenue in a complex and highly regulated financial industry — no easy task. A few years ago, it initiated “Project Breakout,” an effort to build internal tools and rely less upon partners from the financial industry.

 

When the company canceled Apple Pay Later, a major factor in the decision was stricter rules by the Consumer Financial Protection Bureau. The agency said this year that pay-later-style services would have to follow the same regulations as credit card companies. That’s a headache Apple didn’t want to deal with, especially since the size of the business is relatively small. 

 

Given that the iPhone subscription service would use a similar structure and technology as Apple Pay Later, the company became concerned that it too would face scrutiny. 

 

Apple teamed up with Affirm Holdings Inc. and Klarna Bank AB to continue to offer pay-later options within its Pay service without being regulated directly. Apple could conceivably pursue new partnerships to revive the iPhone subscription program, but the company has no current plans to go it alone.