The Next Big Thing for Pay-as-You-Go

A SmartGas delivery technician visits a customer’s home in Nairobi, Kenya, to exchange her propane cylinder, show her how to add credit using her mobile phone, and walk her through a safety check. (Photo by Jessica Alderman)

Within the past decade, greater alignment between international development solutions and consumer earning and spending habits has revolutionized access to essential goods and services in emerging markets. Most families living at the base of the economic pyramid (those earning less than $2.50 a day) remain dependent on day labor, and both earn and spend their wages daily. However, some corporations and social enterprises have adapted their solutions to match these spending patterns and thus overcome affordability barriers that previously prevented the scale of new technologies with higher price points, such as clean cookstoves and solar lighting products.

This is most evident in the pay-as-you-go (PAYG) solar lighting sector. PAYG business models enable “nanofinancing”—products and services in exchange for small, daily sums of money—in cases where traditional financing and even microfinancing is too expensive or difficult to implement. Customers can repay loans in amounts as small as 50 cents from their mobile phone when they have the cash to do so. Solar lighting companies using PAYG—including M-KOPA, Greenlight Planet, Angaza, Fenix, and BBOXX—have provided new products or services to more than 8 million people who otherwise wouldn’t have access. Yet the biggest opportunity for PAYG is yet to come. Its adoption is expanding rapidly to other industries, and now is the time to jump on the band wagon.

Beyond Solar

It’s important to emphasize that the concept of PAYG not only isn’t unique to solar lighting, but also doesn’t need to involve highly engineered, digital technologies to work. Starting in 2002, for example, companies such as Unilever and Nestle began developing single-serving versions of essential sanitation products like soap and shampoo to make them affordable and accessible, even in rural remote areas. These have been the biggest contributor to sales for each brand across Africa.

Meanwhile, companies like Jibu have profitably made clean water access convenient and affordable for low-income families in Rwanda and Uganda. Jibu offers home delivery of clean water for as little as $1 for 20 liters—about 3 days of water use—and has successfully sold 96 million liters of water through 75 local franchises. In Nairobi, Kenya, Sanergy is bringing PAYG to sanitation with a pay-per-use toilet system that currently services 90,000 urban customers a day, and Envirofit has launched a smart-metering technology that enables low-income families to pay for gas as they cook.

Energy, water, and sanitation companies have successfully made the business case for pay-per-use goods and services that previously relied on donations or subsidies, or that were simply unavailable due to affordability. And today, large opportunities exist for other companies, governments, and nonprofits to adopt this model or to partner with companies already using it.

Three Opportunities for Partnership

One major challenge to greater adoption is that, while different sectors are simultaneously developing PAYG technology, knowledge exchange between them is limited. In their article “Why Proven Solutions Struggle to Scale Up,” Kriss Deiglmeier and Amanda Greco point out, “Each sector has its own set of resources, rules, incentives, knowledge, and networks. Mutual awareness is low, and meaningful coordination is even more uncommon.” This applies to collaboration not only between the public, private, social, and investment sectors, but also between companies and organizations working within the same sector, whether energy, agriculture, or public health. But imagine if organizations like Envirofit and Jibu, which are both investing in the resources and capital for home delivery models, could share payment platforms and reduce costs of delivery by bundling multiple products and services.

The good news is that some PAYG business models are beginning to cross-pollinate. Now is the time for companies and other organizations to engage by expanding existing PAYG technologies to support new products and services. In addition, there are opportunities to work with existing PAYG companies to expand their customer base, and create more possibilities for cross-sector collaboration.

1. Expanding Existing Technologies to Support New Products

PAYG customers have access to a product or service which is installed in their home, and companies turn it on or off like a utility. Customers pre-pay for the amount they will need and when their credit runs out, the light, gas, or water turns off, reminding them to make another payment. In this way, the mechanism serves as a loan agent. Organizations implementing this model could partner with others to add new products and services like medications or school fees, and thus help bring financing to items that were previously too small to finance or not traditionally serviced by finance. Another benefit, as with microfinance, is that customers can establish a credit history to help finance larger purchases in the future.

While most PAYG models operate in isolation, more-seasoned companies are beginning to diversify. M-KOPA, for example, expanded its solar payment platform to support children’s school loans for families in Kenya, where existing M-Kopa customers who have paid off their solar system can receive cash through their mobile money account which can be repaid using the daily credit top-up through the solar system. And Mastercard and the solar company Angaza joined together in February 2019 to launch new digital payment solutions for water pumps.

This is just the beginning. Envirofit and Jibu’s models are built around last-mile delivery, which brings services like cooking gas and clean water into urban homes. These companies’ service technicians visit households monthly or even weekly, and could easily disseminate public health information, sell essential medications like birth control, or monitor the administration of tuberculosis medications at the same time. In this way, they could use “pull products” such as gas, water, and electricity to sell “push products” such as preventative medications that traditionally wouldn’t make the household budget cut.       

Although most PAYG technologies are currently available only on a household level, evolving them to serve entire communities could expand their use in other industries. Applied to the vast agriculture sector, for example, PAYG technologies could help make things like mini-grids, irrigation pumps, and agricultural processing equipment affordable to groups of farmers.

2. Working with Existing Companies to Expand Customer Base

Partnerships that expand a customer base can take several forms. For one, large companies or investors can partner with small companies to enable large-scale expansion. For example, in 2018, one of the world’s largest energy companies, ENGIE, acquired Fenix, a PAYG company in Uganda, to grow its operation. Partnerships are also beneficial among regional allies, such as between the government of Togo and the a PAYG start-up BBOXX. In this case, the government provides a $3.50 monthly subsidy for rural households serviced by BBOXX to make the transition from kerosene to solar more accessible.

Recurring delivery models, such as weekly water delivery services, also offer nonprofit organizations and companies who operate last-mile service operations an opportunity to potentially earn income. These organizations often have long-standing, trusted relationships with community networks that would be costly for companies to develop on their own and could help companies acquire new customers for a fee.

3. Creating More Opportunities for Cross-Sector Collaboration

One way to encourage collaboration among enterprises and organizations using PAYG is through grants that require organizations across sectors and disciplines to come together. Grant funding is often necessary for research and development, as well as the adaptation of technology for new partnerships, new locations, or additional inputs. If more funders designed grants to support new innovation between partners that are working to solve different challenges, more cross-sector and -industry partnerships would happen. The Hellman Foundation does this on a small scale, and offers grants to support early- and later-stage collaborations that aim to develop new strategies related to systems change.

A second opportunity for collaboration is in the exchange of knowledge. Most conferences and industry events are issue driven as opposed to innovation driven. Panels are separated by topic; even within the energy space, for example, there is almost no overlap between lighting and clean cooking, even though both sectors are working to solve the same Sustainable Development Goals and compete for the same grants and awards. Organizers might take a page from the annual Social Capital Markets (SOCAP) conference, which is organized around broader themes that affect multiple sectors. By broadening discussion topics; ensuring that representatives from a range of sectors and industries participate; and embracing co-sponsored events, grants, or investments, organizing bodies could help drive collaboration and shed light on how different groups go about solving similar challenges.

The Future of PAYG

PAYG is a powerful way to align the earning and consumption patterns of consumers at the base of the economic pyramid. Indeed, PAYG models are inherently service-based and stand to build long-term solutions that can improve the lives of many people in many different ways. Even organizations that aren’t tech-focused have an great opportunity to work along the value chain of the PAYG business model. Whether it’s adapting existing technology to accommodate new products and services, collaborating with existing companies to improve scalability, or helping foster cross-sectoral innovation, there is room for growth. Ultimately, PAYG is the future of development in emerging markets, but real success will only be possible through cross-sector, cross-industry innovation and collaboration.  

Read more stories by Jessica Alderman.