Towards the end of 2020, we all stared-down our first pandemic Christmas and there was widespread talk of change, new normals and shifts in just about every sector. Aside from the health of the nation, social impacts were being felt through redundancies and the furlough scheme. Paying the bills became a huge challenge for millions of consumers, nowhere more so than in the energy sector. Working at Siemens within our Energy Metering team, I witnessed regulators, suppliers and distributors call on all the flex and agility within their systems in order to keep customers connected while ensuring that bad debt did not consume the industry.
As the number of unpaid bills rose sharply, the UK government and utility companies promised not to disconnect any households that were in financial distress as a result of the pandemic. However, in 2020, Citizens Advice reported that 600,000 more households were behind on their energy bills in December, compared to February that year, taking the total to 2.1m.
Now, thanks to a 50% increase in global energy prices, there has been a record energy price cap rise, which could push even more customers into debt and leave suppliers struggling to support them whilst keeping their businesses out of the red.
Debt control
Traditionally, prepayment has been the only option for energy suppliers looking to manage bad debt. While this solution addresses the risk of bad debt, suppliers shoulder significant transaction and commission fees for meter top ups as well as costs of increased customer service support due to self-disconnection and seasonal build-up of standing charge debt on gas meters. Prepayment is not traditionally offered to microbusiness customers, who instead are asked to pay significant deposits to access tariffs.
The missing part for energy suppliers is how to access prepayment’s risk reduction benefits, but dramatically lower the cost to serve, while vastly improving the customer experience. Both groups need a new way to settle their energy bills. Suppliers must lower their cost to serve, reduce their bad debt risk and improve customer experience. Domestic and microbusiness customers want increased control over and visibility of their energy usage, in an easy-to-manage way.
A new payment option
To address this challenge, we have developed Managed Credit, a new payment option which leverages existing smart metering technology to deliver a Central Wallet app on a smartphone or website so customers can manage their gas and electricity as a single energy balance. This significantly reduces payment transaction costs, increased visibility removes the need for an in-home display and built-in automated top up and alert functionality allows customers to self-serve. Meters are run in credit mode, so disconnection and emergency credit levels are configurable to better support vulnerable customers with budgeting, reducing the risk of self-disconnection.
In addition to existing links to traditional cash and online payment providers, Managed Credit now works with open banking technology from CGI and Ordo. Open banking uses a consent-based approach to financial data allowing parties to make payments to each other without the traditional costs. Critically for an energy supplier, this removes the standard 1% commission fee, which is significant given prepayment customers carry out approximately £4 billion worth of transactions each year.
Into the next normal
As the world cautiously starts to open-up, suppliers will still keep bad debt management at the forefront of their operations.
Recent proposed price rises are expected to create a further 488,000 fuel poor households, according to estimates from End Fuel Poverty Coalition, and some claim that the number of households behind on their bills may have increased to 4 million. Combine this with recurring complaints from energy consumers about their bills, or the level that their direct debits have been set at, it seems that there is a real need for change.
A payment option, with lower operational costs than direct debit and all the risk-free benefits of prepayment, has the potential to transform an energy supplier’s cost and credit risk profile. Managed Credit makes energy management accessible and user friendly for domestic and small business customers delivering a user experience comparable to online or mobile banking.
The next normal is a world that not only requires a greater use of digital tools, but it’s also one that demands flexibility of service models. If the only constant now is change, then energy suppliers have a duty to provide the right tools to their customers while also protecting their own business models.
See how Manage Credit’s cost profile compares to traditional payment options in our whitepaper, downloadable here.
Learn more about Managed Credit here.
Article author: Nick Jones, Head of Managed Credit at Siemens
