South Africa is a global leader in prepaid electricity - currently, around 72% of households have prepaid meters, with electricity sales accounting for 7% of the value-added service (VAS) 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.
First published October 2020, updated November 2022
The margins available for the retail sale of prepaid electricity services are low compared to other VAS services, with typical commissions of 2 - 3.5%. 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 has become the norm to offer a range of VAS products to customers, it’s not worth skipping on this third-most purchased digital item and risking unhappy customers who can easily shop elsewhere.
Consumers still prefer purchasing prepaid electricity in-store. Their first choice is at your POS followed by the money market counter. Electrum’s 2022 Digital Goods and Services Report research shows that although newer digital channels are growing in popularity, 65% of consumers say that purchasing at POS is their preferred channel (compared to 52% via a banking app and 9% via USSD). 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 (with the norm being every three years) and often switch providers as a result. The most recent tenders were updated in 2022. There are a large number of these providers in the market which has given rise to aggregators that combine the services of multiple providers into a single service that they resell into the market. Examples of such aggregators include:
If the correct combination of aggregators and/or providers is not selected, it could result in insufficient municipal 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-selling opportunities.
As a Digital Goods and Services Platform, Electrum connects you to multiple aggregators and service providers to give you access to all available metros and municipalities.
We explored this in more depth in our recent blog on the benefits of multiple VAS providers.
Your commercials can also be affected by the third-party providers 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 digital goods and services 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 excellent meter coverage.
Want to explore building your prepaid electricity business case? Chat to us today or follow us on LinkedIn for more insights on this staple VAS.