Often overlooked because of low fee-earning potential, we have learnt that with the right strategy prepaid electricity is a must-have VAS product for retailers. In this blog, we share our learnings from helping our customers build their electricity offering.
South Africa is a global leader in prepaid electricity – currently around 72% of households have prepaid meters, with electricity sales accounting for 19% of the value-added service market. Due to its slimmer margins, prepaid electricity is one of the tougher VAS products to be successful with, but keeping a few things in mind can help retailers win at this offering and boost their digital business.
The margins available for the retail sale of prepaid electricity services are low compared to other VAS services, with typical commissions of 2-3%. At the same time however, it’s a must-have service to attract loyal VAS customers who purchase multiple products at the same time as buying electricity. As it is fast becoming the norm to offer a range of VAS products to customers, it is not worth skipping on this second most purchased digital item, and risking unhappy customers who can easily shop elsewhere.
Consumers still prefer purchasing prepaid electricity in store at your POS. Our digital goods and services research shows that although newer digital channels are growing in popularity, 29% say that purchasing at POS is their preferred channel (compared to 26% via a banking app and 12% via USSD) and that 38% of consumers have made use of this channel. This means that if you make sure to offer a great in-store experience, you can build customer loyalty.
Another thing to consider is the reach of your prepaid service through the various providers. Municipalities go out on tender for the vending of their prepaid electricity services every few years and often switch providers as a result. There are a large number of these providers in the market. This has given rise to aggregators that combine the services of multiple providers into a single service that they resell into the market. Examples include:
- Blue Label
If the correct combination of aggregators/providers is not selected, it could result in insufficient meter coverage amongst your customer base. When this happens, it is not uncommon to see failed meter lookup requests as high as 25% of your total transaction volume. This will significantly impact your prepaid electricity revenue and potentially cost you additional revenue in other VAS sales that come from cross-sell opportunities. As the leading VAS Software Provider, Electrum plays an important role by connecting you to multiple aggregators so you get full access to all municipalities. We explored this in more depth in our recent blog on the rewards of multiple VAS providers.
Your commercials can also be affected by the third parties or aggregators you choose to integrate with. Municipalities have in the past offered fee rebates on prepaid electricity transactions. These were made under the premise that they would’ve had to carry these fees if they made their services available directly to the public themselves. With the evolution of the VAS market and increased competition amongst consumer facing organisations, very few municipalities still offer rebates like these. It is worth remembering, however, to always ask about fee rebates when negotiating contracts with aggregators and third party providers alike. This could make a substantial difference to your business case.
In summary, while electricity may not be your highest margin service, it will be one of your biggest drawcards when attracting customers who will also purchase other VAS products. Keep customer experience in mind, negotiate the best rate you can, ask about payment fee rebates, and ensure that you have a combination of providers that gives you great meter coverage.
Want to explore building your prepaid electricity business case? Chat to us today because we can help.