Smart moves with smart meters: how commercial VRP could support pay-as-you-use billing models
As the rollout of smart meters gathers pace in the UK, and utility providers work to streamline operations, where do variable recurring payments come in? They could help create better billing experiences for all – read on to discover the possibilities.
Rising energy prices and smart meter rollout are giving households more visibility into their energy consumption, but energy billing lacks flexibility
Utility companies can support customers using open banking tools like variable recurring payments, offering consumers more options
Better user experiences like pay-as-you-use billing are possible with VRP, holding the potential to digitise the energy sector.
As the use of smart meters in the UK becomes more widespread, consumers are now far more aware of their energy consumption – and the associated costs – than ever. Historically low visibility has left households relatively unaware of their own energy consumption. Smart meters however, together with rising energy prices, now create far more impetus for households to save. For utility companies, this highlights an opportunity to support financially vulnerable customers – by leveraging real-time open banking tools.
As the Office of Gas and Electricity Markets (Ofgem) puts pressure on providers to manage financially vulnerable customers, utility businesses are faced with limited recourse, having next-to-no visibility of at-risk accounts, and no way to assess vulnerability in advance of payment default. Prepay billing models, then, have become one of the few ways for utility businesses to manage customer risk.
Traditional monthly billing is based on credit models with manual meter readings – giving rise to issues if customers are incorrectly charged. As a result, this creates unnecessarily complex reconciliation tasks for billers like utility providers.
So far, credit billing models don’t work for those with less stable earnings. In turn, any failed payments and bill defaults present the biller with lost revenue and increased operational costs – for example, credit control, adding further pain points. A quality user experience is now hard to provide, as billers are usually forced to shift their focus from customer service to addressing the burden of their added costs.
Not to mention the challenge of sufficiently managing refunds – and being able to fund the cost of the manual process of reconciling all these payments.
Variable recurring payments and their potential to improve billing
Variable recurring payments are digital-first, frictionless recurring payments – powered by open banking. With VRP, instead of a set cadence and schedule, recurring payments are governed by a mandate. This allows parameter setting to provide flexibility within limits. Parameters include payment period, maximum amount per payment and maximum amount per period – so payments can be far more responsive, while helping protect both business and customer from payment default. VRP mandates are confirmed with strong customer authentication so that once set up, a VRP can run seamlessly in the background.
Commercial VRPs could be the smart way of managing smart meter billing – when adopted in a customisable, postpay model that’s the best of both worlds. If applied in this way – based on usage – VRP could give people more flexibility. It could offer consumers pay-as-you-use choices or an enhanced control option – for customers who are, for example, highly motivated to reduce their energy consumption or who use solar panels.
By combining smart meters with VRP, readings can be accurate and based on actual usage with no risk of over or underpayment – and billed in either prepay or postpay mode: more responsive payments and the ability to set a billing scheme that more closely matches affordability. A user with varying income could allow payments to go out at the end of each week, safe in the knowledge that they will never overpay. And payment won’t be taken if they don’t owe.
How VRP and Tink Settlement Accounts could improve payouts
On top of payment initiation which helps businesses provide a seamless, instant payment experience for every customer, Tink offers settlement accounts. They ensure that funds are settled in real time – with an immediate confirmation of payment to Tink-managed merchant accounts.
For utility providers, commercial VRP could make payouts more accurate when paired with Tink’s Settlement Accounts feature. Payout disputes can cause a reconciliation headache for utility providers and other billers. VRP minimises this risk by capturing account details during onboarding, and payins are automatically reconciled on settlement. This means that bank accounts are connected – and payout error is reduced.
How utility providers and other billers benefit
Lower operational cost: with more payment visibility for customers, customer bill queries fall and call ins are reduced
Easier reconciliation: with digital payment IDs, reconciliation is easier to automate, removing manual processes and risk of human error
More successful payments: automated retries give multiple opportunities to pay and increase the likelihood of successful payment completion before a bill’s due date
Connected accounts: payouts for exported solar power, refunds and subsidies become easy and instant with less error
Reduced customer churn: thanks to lower risk of default, customer churn can be managed for net gain and optimised revenue
Creating a connected experience for consumers
It’s clear that consumer engagement and personalisation through data now impacts almost every industry – making open banking tools highly attractive for utility and service providers looking to go digital and stay future proof.
And VRP is central to this shift. Why? For the first time, payments are truly flexible, evolving the expectation of the low-touch ‘invisible’ payment into something new.
The opportunity to start building fully connected experiences is already here and the groundwork is in place. Connected billing through VRP, combined with smart energy monitoring and compelling user experiences, could be the recipe for digitisation in the energy sector. We’re working with a number of billers on digital experience, so if you’re curious about how your business can get ahead of the curve, reach out to our team.
More in Open banking
2024-11-19
12 min read
From authentication to authorisation: Navigating the changes with eIDAS 2.0
Discover how the eIDAS 2.0 regulation is set to transform digital identity and payment processes across the EU, promising seamless authentication, enhanced security, and a future where forgotten passwords and cumbersome paperwork are a thing of the past.
Read more
2024-10-08
6 min read
Lending essentials: how enriched data solutions help lenders tackle constraints
Enhancing your affordability assessment with Tink’s data-enriched solutions helps you put an end to inaccurate data, prevent fraud in loan origination and stay compliant – read on to explore the benefits.
Read more
2024-09-24
4 min read
Why Pay by Bank fits luxury retail like a glove
Pay by Bank offers a solution that addresses the potentially higher transaction fees and fraud risks while enhancing the customer experience for luxury retailers.
Read more
Get started with Tink
Contact our team to learn more about what we can help you build – or create an account to get started right away.
