Pay-as-You-Go business models give people the ability to pay for what they use as they need it and can afford it. In the case of devices or hardware, ownership is transferred to the end customer over time
Pay-as-You-Go is not Pay-Per-Use, the model used by electric utilities and web services companies that provisions a service for each use. The main difference: pay-as-you-go transfers ownership to the customer over time, or becomes permanently unlocked. Functionality of the device or service can be cut off or locked if payments are not made on time. Payment is typically made via a mobile micropayment or scratch card and often provided to customers without credit histories.
Customers pay in small installments and customer typically provide product and services but also the necessary finance to consumers. Contracts typically include an upfront payment of 10-20% followed by a loan to be repaid over time. The adoption of higher broadband mobile connectivity (3G and above), smartphones, and mobile payments has driven the experimentation with the Pay-as-You-Go model.
Source: Winiecki, Jacob, et al. ‘Briefing Note PAYGo Solar: Lighting the Way for Flexible Financing and Services.’
Agents incentivized to encourage adoption
In markets with limited or emerging mobile money networks, effective pay-as-you-go companies employ well designed systems to incentive frontier agents. These solutions enable sales and service agents to connect with end customers, enable new sales transactions and top-ups, and activate new mobile money wallets. Customers who previously could not afford devices like mobile phones or solar energy are now able to get access to these products and services, resulting in rapid growth in adoption for markets that were previously impenetrable.
Price of hardware or components decreasing over time
Based on lowering integrated circuits, batteries, and other costs reducing over time results in more affordable components and lower costs as these business and model scales.
Smart phone adoption leads to more scalable digital experiences
As more customers adopt smart phones, more touchpoints can be utilized to access the customer experience. The business model can shift from relying exclusively on agents as the primary touch point for sales, payments and customer care to digitized customer experiences including troubleshooting hardware problems and sending payment reminders.
Customers new to mobile money and bill pay
Operate in locations that are new to mobile money and bill pay options, requiring the company to design complexity out of payment experiences. But in rural regions there are challenges with last-mile payments, as service can extend outside of the reach of mobile money systems.
Cost heavy model to balance sheet and income statement
Pay-as-you go models require upfront capital expenditure in equipment; financing cash flow, and ongoing investment in frictionless customer experience. Margins are low for the pay-as-you-go business until more substantial scale is reached. Novel financing approaches are emerging to address this high potential model.
Adoption of data-driven methods to optimize customer experiences
Pay-as-you-go models that deploy smartphones and off-grid solar have unique data points on product usage and payment behaviors that can be used to design better customer experiences, and pave the way for these customers to access more financing as they build their credit histories.
Increase in SDG-related financing for pay-as-you-go off-grid solar
Multiple private public, non profit, crowd and peer-peer funders are eager to accelerate adoption of this model because of its potential to address the climate goals and because of the follow-on effects once customers are enabled by smart phones and credit worthiness. Debt, grants, and equity funding instruments are being developed from multiple actors to further expand the reach of these companies.
Blockchain and distributed ledger technology
As an alternative fundraising channel, pay-as-you-go models are experimenting with financing mechanisms through which energy producers can raise money through coin offerings. Additionally distributed ledger technology is being piloted as a means to accept and send payment.
While the pay-as-you-go model has been validated for mobile payments and off grid solar, if you are adopting this model for an extension product like cookstoves or adopting to a more developed market like car payments in the US, make sure you have thoroughly tested the full value proposition with customers.
Pay-as-you-go Approaches, EnergyPedia.
Funding the Sun: New Paradigms for Financing Off-Grid Solar Companies, The World Bank, 2020.
PayGo Solar: Lighting the Way for Flexible Financing and Services, Fiber Briefing, 2017.