Why utility companies should think more like Netflix and Spotify

The last decade has seen the rise of many explosively popular businesses based on subscription and recurring payments.

Utility companies can benefit from open banking payments.

Netflix, Uber, and Spotify are the giants, but there are also many smaller, but highly popular businesses such as HelloFresh, Stitch Fix, and so on.

These companies all sell different things. But outside of what they sell, a key reason for the success of the business model is how they manage payments.

Consider this. In any given month, a percentage of transactions may fail, for reasons such as lack of funds, expired cards, technical failure, or something else. These percentages can vary widely depending on market, payment method, business type, and so on. But at a hundred thousand recurring customers per month, that could potentially translate to several thousand customers being involuntarily lost month-on-month just from payment failures alone.

Spoiler alert: companies that are successful with the subscription and recurring business model do not lose this amount of customers due to payment failures. Instead, they see payments as a strategic consideration, and invest in different ways to ensure they successfully process as many as possible.

The takeaway for utility companies

Like the companies above, utility companies operate on a subscription or recurring payment model. However, there are also key differences. Utility companies are highly regulated, deliver key human needs, and serve every socio-economic group in society. Understandably then, payments innovation is not baked into the DNA of these organisations in the same way as a tech company. However, the rise of open banking now offers a range of opportunities for utility companies to save money AND protect potentially vulnerable customers by reducing debt collection costs, decreasing credit risk, and creating more efficient operating models. Let’s look at a few examples.

Create seamless payment experiences

If a customer has not paid their bill, they normally receive several letter, email, or phone call reminders, which redirect them to pay on a website, followed by contact from a debt collector. This is an expensive, cumbersome process with a plenty of potential points of failure.

So how to ensure that the payment flow is as fast and easy as possible?

Payment Initiation Services (PIS) offered by YTS can be leveraged to do this in several ways. For example, you could send your reminder with a QR code or text message that redirects your customer directly to their in-app bank environment, with pre-specified payment details, to pay the bill. This immediate and intuitive payment flow removes several unnecessary steps, leading to increased conversion, which also reduces time and costs with emails and debt collectors.

Benefit from lower transaction costs, and receive funds instantly

Credit card fees are complex and expensive for businesses. And that is even before fraud, late payments, and other hidden costs drive up the price for utility businesses and consumers alike. Furthermore, there is always a waiting period for settlement, which needlessly slows down cashflow.

With open banking payments, YTS charges a flat fee per transaction, which is significantly lower than card fees. Multiplied across tens or hundreds of thousands of transactions, this can translate into significant cost savings. And because payment is instant, cashflow speeds up.

You can save up to 90% on transaction fees

Implement data-driven recurring payments

Currently a percentage of your customers are billed in the days leading up to when their income is deposited. And a number of these customers, though not financially stressed, may be short on cash at these moments, leading to late payments.

With your customer’s consent, open banking solutions such as YTS offer the possibility to gain insight into your customers’ financial profile, automatically understand which the best day of the month is to initiate a payment (read: when their income is deposited), and create a recurring payment on that day. Again, this has the potential to save significant amounts of money and time currently wasted on chasing customers with letters or on the phone.

Build relationships, not debt

Utilities serve a wide range of people, including financially vulnerable. Having access to real-time financial profiles of customers can help you identify customers most at risk, meaning you can:

  • bill them at the right time and on the right tariff,
  • know when to prompt them via text or otherwise,
  • ensure they can manage to maintain their payments without undue stress,

and simultaneously lower collection costs.

Your gains could be in the millions. And you can measure them directly.

The cost of failed payments, reminder letters, and debt collectors is always paid by someone in the end – whether it is your company, or your other customers. Failed payments are not just frustrating - they raise the cost of accessing basic services for everyone.

On the flipside, the beauty of investing in open banking solutions is that you can measure ROI directly. For example, by implementing open banking (recurring) payments, you can compare your before and after conversion rates. If you start to make data-driven decisions about when to bill people based on their financial profile, you can do the same. And by making incremental optimisations, you will continue to improve your conversion rate – a few basis points multiplied by thousands of customers multiplied over years can easily mean hundreds of thousands or millions in saved revenue.

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