This blog post draws from the GSMA Mobile for Development Utilities Annual Report and from the ‘Building the Pay-as-you-go Utopia’ session which recently took place at Mobile 360 – Africa. It is the first in a series of blogs, highlighting the main findings from the Annual Report.
The pay-as-you-go utopia that Daniel Waldron, Digital Finance Plus Analyst at CGAP, described at Mobile 360 Africa; one where a farmer would use mobile money to pay for her energy to light her home and power her TV, for her gas for clean cooking, for her solar-powered irrigation pump to grow more crops and for her clean toilet and water, may not be that distant into the future. Our Annual Report notes the rise of new use cases for pay-as-you-go as demonstrated by our Innovation Fund grantees.
Use cases for pay-as-you-go:
|Grantee||Product or Service||Sector|
|Village Infrastructure Angels||Productive use of energy for agro-processing at energy hubs.||Energy|
|Gham Power||Community Power from Mobile model for productive use of energy, such as refrigeration, agro-processing mills, poultry incubation and water pumping.||Energy|
|KopaGas||LPG canister and meter for clean cooking.
|Energy, clean cooking|
|Mobile 4 Energy||Micro-grid connections for local businesses.||Energy|
|CityTaps||Smart prepaid water meters.||Water|
|Lilongwe Water Board||Communal water ATMs.||Water|
|Africa Water Enterprises||Rural water taps.||Water|
|SunCulture||Solar-powered water irrigation pump.||Energy, Water|
Innovative business models such as these are made possible by mobile channels in two ways:
- they enable payment collection through mobile money or other forms of mobile payment; and
- they update and control pay-as-you go (PAYG) enabled assets or services through machine-to-machine connectivity or mobile services, such as SMS or mobile apps.
By providing an affordable and convenient means of payment for those with irregular incomes, PAYG expands the addressable market significantly to reach part of the 40 per cent of people in Sub-Saharan Africa who live on less than one dollar per day. However, as Jesse Moore, CEO of M-KOPA reminded the audience during the panel, this poses a credit risk that is the most challenging aspect of the business model to deal with.
Data sharing to enable better credit scoring
As both mobile operators and service providers collect information on customer behaviour, repayment or airtime purchase rates and geo-locations, there is an opportunity to break down data silos to enable better credit scoring for segmentation and development of products and services, noted Ari Zlotoff, Director of Expansion at Off.Grid:Electric.
This would indeed be key to growing the ecosystem per Darragh Dolan, Co-Founder and COO at RE-VOLT. There are a couple of challenges however to this type of collaboration. The first is telecom regulations which currently prohibit the sharing of customer and transaction information. The increased penetration of smartphones, internet access and the advent of mobile money mobile apps may finally eschew this issue by directly obtaining user consent to data sharing. The second challenge, noted Jesse Moore, is that research is still required to determine what type of data can be used to derive a credit score. Only once the algorithms have been proven and the business models quantified would service providers be willing to pay mobile operators for this data.
Integration with mobile money platforms
Another barrier to building the pay-as-you-go utopia is the technical integration of service providers to mobile money operators’ platforms. To fulfil customers’ high expectations of a system that works instantly once a payment is made, real-time and reliable payment notification is required. A member of the GSMA Mobile Money team explained how an ‘Instant Payment Notification’ (IPN) Hub may be a solution to this problem and described the current approach to test the effectiveness of such a hub on a very small pilot basis in Rwanda. Panel member Jesse Moore agreed that PAYG utility service providers are particularly reliant on being notified instantly of their customers’ payments, and an IPN Hub would be useful for them. In parallel, the GSMA Mobile Money programme is working with the wider mobile industry and financial ecosystem on API harmonisation to unify the different interface protocols. These specifications should be available later in 2016.
One thing for certain is that strong partnerships with mobile operators are what will make the PAYG utopia a reality. Leveraging strengths on both sides of the partnership for customer engagement, mobile money awareness and education, machine-to-machine connectivity, co-branding, distribution, and eventually credit scoring will allow the ecosystem to serve the customers who need it most, not only in the energy sector but also potentially in the water and sanitation sectors.
For further information on how mobile is unlocking rapid growth of PAYG utility services see pages 18-24 of our Annual Report.
The next blog in our series will look in more detail at investment trends in the mobile-enabled utilities sector.