Market view: the changing face of pre-pay energy

Pre-payment in the UK utilities market has, in the past, brought with it a social stigma.

It has been seen by more affluent consumers, rightly or wrongly, as a kind-of indicator of poverty; a class divider.

From coins in a meter to mobile phone-style top up cards purchased from local off-licence and convenience stores, various methods of pre-payment have evolved throughout the years. However, in today’s fast-paced and rapidly evolving and technologically empowered energy marketplace, change is afoot.

As with almost all industries, the mechanism by which companies and customers interact with one another has changed dramatically. Thanks to the rollout of broadband capability and increasingly universal access to computers, laptops, smartphones and tablets, online billing and payment is an increasing norm.

This, of course, allows customers to be more directly engaged than ever with the products and services they buy including the monitoring and management of their energy consumption. Mobilised, millennial consumers embrace these empowering, interactive methods of digital communication and are known to be highly demanding and interested in actively playing a role in managing their spending.

This is where the opportunity around pre-pay comes into our energy sector. Crucially, to millennial consumers and, indeed, anyone who embraces that style of engaged consumer activism, pre-pay is not necessarily a payment method that comes with a stigma.

Instead, it gives customers the opportunity and control to do things on their terms – they can make an informed choice quickly, using accurate information, rather than feel they are subject to a varying recurring charge. The technology empowers them to monitor consumption so they can amend their usage, factoring in the amount they wish to pay over a given period.

For example, a modern pre-pay customer could buy £20 of energy via an app on their smartphone within a few clicks.

They could then use the app and their smart meter to monitor live usage information and consumption and turn on and off lights/heating devices according to their spending preferences.

This, of course, could lead to a reduction in spending, though control and convenience are likely to be of equal importance to the modern pre-pay customer who wants to actively manage their energy consumption.

From a customer retention point of view too, empowering consumers in this way could be invaluable. In addition, companies can benefit from the cash flow boost that upfront payment creates, through the reduced need for payment collection mechanisms and almost complete automation.

Looking at things this way, of course, is a departure from the traditional and won’t work for everyone. Some, more traditional consumers will have no interest in being as directly engaged as this and will prefer to take a less hands-on approach to their energy usage, billing and overall engagement with their energy provider.

But we live in changing times and for utility companies, it could present a real opportunity, particularly around the marketing of pre-paid systems to localised community and customer groups.

With uniformity of metering due to the pending UK Smart Meter rollout, comes a chance for mass sales to groups like those on social media, student campuses, sports clubs, schools and other places where there are other communal living and community engagement situations.

More so than that, it could help break new communal living markets; think city centre private rented spaces.

There could also be additional benefits for traditional prepay customers. By combining smart metering with customer facing devices like usage monitors, vulnerable customers will be empowered to get the most out of prepay.

The success of companies in this destigmatised and changing pre-payment climate compared to their competitors will likely be down to two main factors; price and customer service, so the usual market truisms apply.

For example, with it being a highly competitive environment making your mechanisms as easy and customer friendly as possible, from on-boarding to payment and everything in between, is vital.

While pre-payment, by design, can lead to a less direct relationship between consumer and utility suppliers there remains a chance, when interactions do occur, to win customer loyalty.

To conclude, pre-payment won’t be for everyone but it certainly represents an opportunity as millennial consumers and technology revolutionises buying habits.

Through a combination of different market positioning, great customer service, price and market understanding, utilities and customers could stand to benefit considerably.