Differentiation through billing and payment innovation

Innovative approaches to energy billing and payment can be an area of differentiation for independent suppliers who want to gain market share – and a vital touchpoint with customers, says Ross Macmillan.

The ongoing fragmentation of the energy market is continuing to see greater switching from customers, more price flexibility and innovative approaches to the billing and payment of energy.

According to 2015 figures from Energy UK, the medium and smaller suppliers recorded a share of 11.1 per cent in household electricity, 11.3 per cent in gas and 13.4 per cent in dual fuel – the highest ever since competition started in the late 1990s. And in the six months leading up to July 2015, the major suppliers lost aggregate energy share to independent suppliers by 1.6 percentage points, falling from 90.5 per cent to 88.9 per cent.

So what’s fuelling the shift? The government and Ofgem have been looking to increase competition in the sector and are working with suppliers to simplify tariffs and speed up the switching process.

The political gaze on energy suppliers and the regulatory action taken to increase customer awareness about alternative services sparked a huge rise in switching last year – accelerating the small supplier share.

There were 28 applications for gas supply licences in the 12 months to 31 July 2015 and 31 applications for electricity supply licences, rising from 14 gas and seven electricity in the 12 months to 31 July 2014.

So what are the new entrants offering?

Just like the ‘big’ banks, the ‘big’ energy companies can’t be everything to everyone. The emergence of new suppliers is seeing some focus on particular demographics of society and doing that well, for example specialising in prepayment; taking different approaches to engaging with customers; providing more targeted, segmented tariff options; or installing new, innovative meters that facilitate better energy management.

Then there’s cost. New suppliers have different cost models to the big suppliers – smaller overheads, less reliance on in-house resource – making them more agile and flexible on pricing. Where big players are used to utilising big, established budgets, smaller players have to think about every single line item of spend.

This means they have to be clever in how they contact, engage and support customers in the event of a problem – simply sending support staff for every callout wouldn’t be sustainable. Instead they’re utilising technology to support customers through mobile, or via the meter to increase convenience and lower costs. The gradual decline of wholesale gas and power prices since 2011 has further limited the big six’s vertically integrated model.

Payment innovation can also be an area of differentiation – and a vital touchpoint with customers that requires suppliers to have the full breadth and flexibility of ­methods to suit their customers’ needs.

As a payments supplier to energy companies, we are seeing demand for our multi-channel payments platform with full flexibility on direct debit payment days, online and mobile card payments and cash payment options for financially excluded customers.

Getting smart

Smart meters are set to transform how people understand and manage their energy usage – and are becoming an important differentiator for suppliers; some only now are rolling out smart meters ahead of the government’s anticipated full-scale rollout by 2020.

According to Ofgem, more consumers than ever are using prepayment to pay for their energy bills (15 per cent), and many in the industry feel that full rollout will make the option appeal to the masses because it will facilitate innovative tariffs, in-home displays of energy use and real-time, accurate information on consumption – helping customers to budget better.

Overall, a fragmented energy market can be seen as positive news. Suppliers that are only just coming into the market are free to look at their cost base and carve their own path by supplying competitive tariffs, tailored customer service, innovative metering, and billing and payment options.

Increased competition will also ensure the big six look past each other to realise that the competition from smaller ­players is ­hotting up. The impact of both can only be positive news for the end user – the customer.

Ross Macmillan, head of research and intelligence, Allpay