Apple paused plans to launch iPhone hardware subscription packages

According to people familiar with the matter, Apple Inc. Apple Inc. has paused its project to build an iPhone hardware subscription service, backing away from its effort to change the way consumers buy its flagship device.

The idea, according to people familiar with the matter, is to make owning an iPhone more like subscribing to an app — with consumers paying a monthly fee and getting a new phone each year — but recently Apple abandoned this attempt. The team disbanded and was reassigned to other projects, said the people, who asked not to be named because the work is confidential.

The move is part of a larger shift in how Apple approaches payment services. The subscription effort is overseen by the company’s Apple Pay team, which also shut down its “buy now, pay later” program earlier this year. That service allows shoppers to pay for purchases in installments, but Apple is now directing consumers to third-party programs instead.

Bloomberg News first reported on the iPhone subscription service in 2022, when the program was expected to launch later that year. It was ultimately delayed until 2023 — and beyond — after encountering numerous setbacks, including software bugs and regulatory concerns. The company’s top executives sent the work back to the drawing board before the project was eventually scrapped.

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

When Apple started developing its hardware subscription service a few years ago, it aimed to sell more iPhones and generate greater recurring revenue. The device is Apple’s biggest moneymaker, accounting for more than half of its annual revenue. The company also wants to continue engaging users in Apple’s product ecosystem.

It would work like this: Instead of paying for an iPhone outright or signing up for an installment plan, customers would pay a monthly fee into the same Apple account they use to download apps and sign up. Sign up for the service. They can then trade in their iPhone for a new model each year.

Like the now-defunct Apple Pay Later program, hardware subscriptions would use an internal financial infrastructure and rely on loans provided by the company itself. Earlier this year, Apple rolled out an iPhone subscription service to test employees on its Pay team. App Store and online store payments working groups are also involved.

The service would be competitive and could annoy Apple’s wireless service partners, which increasingly rely on installment programs and promotions to sell iPhones and retain customers.

It could also have replaced two programs long offered by Apple itself. That includes the iPhone Upgrade Program, which spreads 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, offered by Goldman Sachs Group Inc. processed and available only in the United States.

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

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

Given that the iPhone subscription service will use a similar structure and technology to Apple Pay Later, the company is concerned that it will also face increased scrutiny.

Apple has partnered with Affirm Holdings Inc. and Klarna Bank AB to continue to offer later payment options in its Payments service without being directly regulated. It’s conceivable that Apple could pursue new partnerships to revive the iPhone subscription program, but for now the company has no plans to do it alone.