The UK’s energy sector is under unprecedented pressure – the increasing cost of wholesale gas and power (with further price cap increases expected in October 2022), a string of supplier bankruptcies, combined with post-pandemic debt challenges for many customers – have produced a perfect storm of challenges for energy companies and consumers alike.
While there is no silver bullet to remedy this series of complex problems, it does provide further impetus for energy companies to explore – and expedite the development of – smarter solutions which lower the cost-to-serve. Hence the rise in open banking payment solutions (bank-to-bank transfer).
Cost savings and cheaper ways to pay
The opportunities are two-fold: offering domestic customers a new, real-time, secure and convenient way to pay, and significant direct and indirect cost savings for energy retailers. This includes a more cost-effective alternative to Direct Debits.
We spoke to Siemens, which has collaborated with payment solutions provider Ordo, and systems integrator CGI, to offer open banking technology as a payment option within its Managed Credit solution.
Siemens Managed Credit
“Managed Credit was developed as a way for energy suppliers to manage credit risk more effectively and offer a lower cost-to-serve, while providing end customers with a more intuitive customer experience,” comments Nick Jones, Head of Managed Credit, Siemens.
“In addition to traditional online and cash payment methods, it offers suppliers access to Ordo’s bank-to-bank transfer platform, removing costly commission charges. This means suppliers can offer Managed Credit as a cost-effective payment option, which is cheaper than Direct Debit.”
Open banking allows businesses to securely request payments from their customers in real-time, via direct bank-to-bank transfer. This eliminates payment card and reconciliation fees on every transaction, generating significant savings.
Managed Credit also offers an alternative to typical credit and prepayment arrangements. It helps energy retailers tackle the problem of costly pre-paid meters, which are traditionally more expensive – and time-consuming – to run for both energy retailers and their customers.
Retailers benefit from commission-free transactions
For an energy supplier managing a significant volume of payment transactions each year, this removes the standard 1% commission fee typically associated with payment transactions This is a major saving when pre-payment energy customers alone carry out approximately £4 billion-worth of transactions each year.
It also gives retailers an opportunity to offer their domestic customers a more compelling alternative to traditional pay-as-you-go (PAYG), Direct Debit and pay-on-bill arrangements, particularly for digitally-connected consumers.
Managed Credit works by running smart meters in credit mode (but managed as if they were operating in prepay mode) while maintaining a central payment wallet via a smartphone or website.
Benefits for consumers
The wallet lets customers manage their gas and electricity in a single energy account and by topping up a single wallet, they make up to 50% fewer top-ups than with individual smart gas and electricity meters operating in pre-pay mode. It also gives customers greater insight into their energy charges and payments, helping them to take control of their bill, and reducing reliance on customer services.
As competition intensifies and wholesale energy prices continue to rise, energy suppliers will look for new ways to lower their cost-to-serve, manage bad debt risk and opportunities to significantly improve customer experience.
Variable Recurring Payments set to take off
One of these opportunities is presented by Variable Recurring Payments (VRPs), a new open banking technology which lets customers safely authorise FCA-regulated payment providers, like Ordo, to make repeated payments on their behalf. The payments must sit within a mandate agreed by the customer and a business, such as an energy supplier.
Fliss Berridge, co-founder at Ordo, explains. “Open banking will make VRPs – repeated payments like monthly utility bills – much smarter, more convenient and efficient. A ‘smart Direct Debit’ if you like.
“VRPs can be set up in minutes rather than weeks, and payment mandate parameters can be changed dynamically, right up to the point of irrevocable payment, meaning businesses and consumers can respond to life events in real time. Payment transfers are also in real time, without long processes and paperwork. Once open banking is used for our regular bills, we’ll wonder how we ever got by waiting.”
Fliss expects companies to start to integrate VRPs in the second half of 2022. She suggests keeping an eye on those businesses which have made a head start on implementing this technology as they begin to deliver the flexibility, improved customer experience and further cost savings it offers.
Notes to editors
You can download Siemens’ Managed Credit technical whitepaper, which presents OFGEM data alongside the cost savings of bank-to-bank transfer compared to other available payment methods.
The Open Banking Implementation Entity does not endorse any of the products or companies mentioned here.
If you would like to share your organisation’s experience of open banking, please email us at firstname.lastname@example.org.
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