Prepaid electricity is big in South Africa - being the third most-bought value-added service (VAS), with an estimated market value of R2.8 - 3.2 billion per month.
As a massive 72% of the South African population has access to prepaid electricity, adding this service to your VAS portfolio should be an easy win. So why is it still seen as one of the most challenging digital goods and services to be successful with?
Prepaid Electricity comes with some strings attached as this VAS is:
- Influenced by municipal tenders;
- Known for lower rates and commissions than other products in the digital goods and services portfolio;
- Initially established as, and is still somewhat associated with, a retail offering.
None of these is a reason to hold back when it comes to this offering. In fact, if approached correctly, they can all work to the benefit of banks.
Full coverage of South Africa
Every 3-5 years South African municipalities put their electricity distribution service out for tender. Prospective vendors are invited to respond to RFPs after which municipalities will either appoint a sole service provider or choose to bundle the distribution partners, therefore creating a very competitive environment. You are at risk if your strategy is to connect to a limited number of providers. Should the tender be awarded to providers you do not integrate with you will lose the ability to serve your customers as you will only be able to provide prepaid electricity for certain municipalities and metros.
If one of your existing, active electricity providers loses a tender and is disconnected from a municipality, you will receive an increasing number of failed purchase requests - leading to lost revenue and unhappy customers. Once your electricity offer is deemed unreliable, customers will move on to the business that is able to service their needs.
The best way to mitigate this risk is to ensure your offering has full coverage by integrating with multiple service providers.
Optimise low margins with high volumes
The relatively low commissions on prepaid electricity can be a prohibitive factor for smaller retailers and kiosk operators, preventing them from providing this offering. In most of these cases, banks are in a prime position to enable prepaid electricity as part of their VAS offering through their ATM network in proximity to retailers.
When margins are low it’s important to avoid the brokerage of a third-party provider and associated dilution of margins. Instead, partner directly with the aggregator or provider holding the tender for prepaid electricity distribution at the different municipalities and metros.
Prepaid electricity is a VAS with some of the highest purchasing amounts and most constant volumes. Our 2022 Digital Goods and Services Report found that most South Africans purchase prepaid electricity once a month and spend R201- R400 on average per purchase. Therefore, this is one of the most reliable and stable offerings in the market. It can also be assumed that if the trend of NERSA approving significant tariff increases persists, so too will prepaid electricity revenues for banks.
(Customer) Convenience is key
In our research we have found that bank apps are the second most popular channel used to purchase prepaid electricity. The reasons for this popularity are because consumers find bank apps:
- Convenient
- Accessible
- Easy to use
- Trustworthy and safe
Offering prepaid electricity on your bank app will bolster your customer satisfaction. Purchasing from an app gives them access around the clock, something that retailers’ in-store offerings don’t allow. Bank apps are perceived as reliable and secure, but they’re also easy to use. Some apps have the functionality to save the meter details (alias) which makes it convenient for the customer to purchase prepaid electricity repeatedly from the same account. This also removes the user risk of typing in the wrong meter number.
Another contributor to convenience is building your bank app as a one-stop shop for VAS. This helps customers to easily purchase all their digital goods and services from your bank, at once, when using the app. Our survey data shows 79% of people who buy prepaid airtime and data also purchase prepaid electricity. By offering both, you can secure customers for both of these staple digital goods and services - this will result in an increase in loyalty and satisfaction. Your portfolio will also realise higher returns as you generate revenue from multiple VAS streams.
You can Win with Prepaid Electricity
While prepaid electricity might seem like one of the more challenging VAS to add to your portfolio, it’s definitely worth it. With a reliable purchase frequency of once a month, 45% of the respondents that have formed part of our research have stated that they’re planning to spend more on prepaid electricity in the future.
In conclusion, be aware of which providers hold prepaid electricity distribution tenders, optimise your commercials to beat low margins and keep your customers happy with a convenient and easy-to-use service, such as Electrum’s multi-provider VAS platform.
Chat to us to learn more about how Electrum can help your bank with a tender-proof prepaid electricity offering that covers all of South Africa. You can also follow us on LinkedIn for more insights on this staple VAS.
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