How Prepay Works

As the utility industry evolves — especially thanks to technology that provides greater data and transparency for both the organization and the customer — prepay has emerged as an attractive opportunity.

Let’s have a look at prepay programs including some common misconceptions, and how they are a true win-win for both the utility and the customer.

Traditional Billing and Payment for Utilities

First off, it’s important to understand the legacy systems and customer options that have been in place for decades.

Most residential and business utility customers are familiar with post-pay: they pay the bill for the previous month of service. Most of the time, the bill would not come as a complete surprise, as customers often have a general idea of the amount owed based on experience. However, there can be fluctuations based on seasonality, rates, temperature swings, and spikes in usage and in this model, customers do not truly know what they have used or what they owe until after the fact when the bill arrives.

However, as the Covid-19 epidemic has demonstrated, having a better understanding of your bills in real-time has become increasingly important. Families and businesses have had to cope with income and personal loss, and more frequently the payment of utility bills must be weighed against other bills and expenses vying for a portion of the customer’s wallet. Today, more flexible payment systems tied to the transparency of usage and its resulting costs are in order, and prepay has stepped in to provide relief.

How Prepay Works

Prepay essentially refers to a flexible system in which customers make deposits and keep funds in reserve as part of a running balance.

Prepay customers can add money in large or small increments to raise their balance, and they can choose to “auto-recharge” their account once their balance goes below a specified threshold. For example, if a balance drops below $15, a customer can automatically authorize the account to add $50 to the balance from that customer’s connected checking account.

This is akin to a Starbucks Rewards card, in which customers keep funds in reserve and then use those funds for purchases, or a prepay toll pass where motorists maintain funds in an account that automatically get deducted as they travel and tolls accumulate.

With prepay in place, customers no longer receive bill surprises, because they can monitor their usage, how much that usage costs, and their running balance on a daily basis. They can also receive timely alerts based on balance thresholds they configure. This greater transparency helps with budgeting, and customers no longer have to call the utility to negotiate payment arrangements to pay off large, unexpected bills. In those instances where post-pay customers have large outstanding debts and are facing disconnection, any unpaid usage balances can be placed in a debt assistance feature that allows the customer to pay it off over time with a portion of each payment being applied to the debt.

For example, a customer owes $500 in unpaid bills to the utility. The utility can move $500 to a debt recovery program in which 25% of each payment goes to servicing the debt, and 75% goes to the prepay balance. There is no deadline and no interest applied to the debt. This acts like a $500 interest free-loan from the utility that can be paid off over much longer periods of time in a consistent and automated manner.

This debt assistance feature has been proven to be much more effective at paying off large past-due amounts than traditional payment arrangements. Our utility customers tell us that traditional postpay payment arrangements fail more than 50% of the time while prepay debt assistance helps customers successfully pay off their past-due amounts more than 80% of the time. No other type of utility debt pay-off arrangement has been more successful.

Who Uses Prepay

While any user of a utility service can enjoy the benefits of prepay, utilities report that college students and millennials especially enjoy prepay programs. These younger demographics tend to be more technology-forward and data-fluent: they demand greater transparency so that they can have a better idea of how they are using a service and where their money is being spent.

Additionally, college students and millennials also tend to be more environmentally conscious and are curious about energy and utility usage. Since greater usage awareness goes hand in hand with prepay programs, they can determine where their usage is highest and make adjustments where needed.

Regardless of demographics, users of prepay programs can check their usage every day if they wish or set notifications to remind them when their balance or usage reaches a certain level. This minimizes the surprise of getting hit with a big utility bill. In general, prepay users receive more information and engage more frequently with their utility through customizable alerts than any other customer segment.

Prepay Technology Drives Awareness and Customer Satisfaction

More sophisticated payment options can only be offered once the utility has gone digital. Smart meters and other technologies (ideally) need to be in place in order for the utility to offer their customers varied, flexible payment options as well as timely access to data.

Smart meters can be used for electricity, gas, water, and essentially any metered services provided for homes and businesses. Legacy systems simply cannot deliver the data and insights that drive customer awareness of their utility usage.

The transparency associated with prepay has resulted in customer satisfaction numbers greater than 90%. Customers feel that they are in control, they are managing their bills, and they can make the payment decisions that make the most sense for them.

Mobile app versions of utility usage dashboards increase engagement and enable customers to keep closer monitoring of their usage and spending. Traditional call centers and IVR systems are giving way to mobile apps, in which customers can choose to communicate with their utility via email, text, voice call, or app push notifications. This gives customers much more choice, and frees up the utility’s operational resources.

Customers can even report an outage from their prepay mobile app, injecting efficiency into a process that would require calls to a call center.

The utility can also alert the customer of any low balances or pending disconnects. However, thanks to smart meter technology, once payment is received, service is turned on immediately, rather than having to wait for a service provider to come to the house.

The proliferation of smartphones and a “connected” user base, allows utilities to communicate with customers not simply about payment-related issues but also about power outages, pending system maintenance, or storm readiness. Receiving alerts directly from the utility builds trust with customers, who otherwise would be reliant on third-party sources (i.e., news outlets) that may not be able to provide the most relevant emergency information.

Customers Should Demand Prepay

By providing customers with greater choice and increased transparency, prepay will continue to grow on its own merits.

Call it the “consumerization of IT” or simply market demand: once consumers learn of the benefits of smart meters and the associated prepay options, they will become increasingly curious and hope that their local utility will provide it.

These programs have continued to grow rapidly at numerous utilities through word of mouth and customer referrals whether utilities have marketed the program broadly or not. As customers tell their friends, neighbors, and families about the new sense of control and unparalleled visibility they now have with their utilities, we have seen program growth of prepay programs consistently in the 25–30% range each year with adoption rates 50% or higher for those utilities actively promoting the program. With 90% customer satisfaction and referral ratings, prepay provides a win-win for both utilities and their customers. Exceleron has deep experience in implementing these functionalities to the specific specifications of each utility and providing consumers with the choice, convenience and control they want.

Contact Exceleron today.

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Exceleron Software

Exceleron Software

North America’s leading utility prepay and payment service company.