Auto-switching is where customers sign up to a third-party site and have their tariffs automatically changed to the best deal, or deals, tailored for the customer, such as green energy tariffs, for example.
Recently, two entrepreneurs received the “best equity deal” in the 13-year history of the BBC show Dragons’ Den for their switching service Look After My Bills.
Look After My Bills is not the only energy auto-switching service on the market. Consumers have several options on the table, including Labrador, Flipper, Switchcraft and Switchd. Their financial model varies. Flipper charges a £25 annual membership fee, while Look After My Bills charges the energy company it switches the customer to.
But how do such websites work and how much impact will they have in changing switching behaviour?
Automated switching sites are generally based on software that uses algorithms– a process or set of rules that the computer is programmed to follow.
Ryan Thomson, a partner at Baringa Partners, explains: “The word algorithm is very open to interpretation; a simple maths equation could be considered an algorithm. Effectively what they [energy switching services] are doing is taking your current pricing and looking at your current consumption and they are automating the process of looking for what prices are on the market.”
However, some would claim to be more intelligent than that and consider wider factors such as exit fees and customer service ratings and are also more selective in terms of the energy retailers they look at.
Flipper, for example, uses its own savings algorithm, which examines several aspects of a tariff to calculate which is the best for a particular customer.
Andrew Mostert, Flipper’s digital marketing manager, explains: “We have our own savings algorithm, known as ‘Joules’, which doesn’t just look at the unit rates but also includes exit fees, switching times and the time left on the current deal in its calculation.”
Switchcraft founder Andrew Long says his site likes to emphasise its “tech credentials” and has developed its own auto-switching algorithm.
“Our system uses tariff data from a third-party application programming interface but the auto-switching algorithm is our own work.”
He explains how the auto-switch process works: “In advance of the end of their plan, the user gets three emails explaining what we are doing on their behalf and giving them plenty of time to cancel if they are not happy. We want the user to be completely in control even though we are organising things for them. Since we’ve been live for more than a year now, we can confirm that almost all customers are happy for us to process their repeat switches.
“Right now, the user gets switched to the cheapest deal respecting their preferences (just the cheapest with no other factors, green only, large suppliers only, fixed-price plans only, plans without exit fees). We are working on ways to make that decision in a more balanced way – for example, a user might be prepared to pay £20 more for a green plan but not £200. The decision is rarely as stark as that in practice, but you get the idea.
“The public is finally waking up to the scale of overcharging in the energy industry and we think that auto-switching is the solution.”
While each website promises it has the technology and algorithms to find customers a better deal, others remain to be convinced. One industry expert believes the current market needs to offer more in order to make the switching services live up to their potential.
Former Npower boss Paul Massara, now chief executive of blockchain company Electron, says there must be more product differentiation in the types of tariffs offered before switching sites can really take off.
He argues the paid-for services are offering only what consumers can do themselves and until there are more time-of-use tariffs, auto-switching sites are just choosing between standard and fixed tariffs.
“At the moment the only time-of-use tariffs that people are offering are Economy 7 or standard, so that’s really the only choice that they can make. So the question is, why would I sign up to a site to do that if you are only offering me those two options?
“Their time will come when there’s multiple time-of-use tariffs, when there are tariffs tailored much more to individuals. At the moment there isn’t a lot of that, so therefore the automatic switcher is really somebody who is just scanning the existing sites saying which one should you switch to. Why are you paying for that? I guess you’re paying for it if you’re too lazy to switch yourself.”
While the options are limited, the market does offer some time-of-use tariffs. Octopus Energy has launched a number of time-of-use tariffs.
Green Energy UK also launched a time-of-use tariff in January 2017.
This article first appeared in quarterly publication Flex, a sister title to Utility Week. To view the whole first issue click here, or download the pdf: