PAYGo Solar at a Crossroads: Why the Industry Must Choose Between Protecting Customers and Satisfying Investors
This article was originally published on NextBillion.
While many have come to recognize the potential for PAYGo solar to deliver affordable, reliable energy to off-grid customers, in the past year the industry has begun to move in a direction that cuts this promise short. The true potential of PAYGo lies in providing customers the opportunity to affordably pay for life-enhancing products in installments, and in the end, own them outright. This allows off-grid families to secure access to reliable, clean energy under reasonable financing terms, and helps last-mile distributors reach previously untapped markets. On the surface, this is a clear win-win – but the industry is headed down a questionable path.
With over $500 million in investor financing pouring into off-grid solar in the past year, PAYGo operators have faced heightened pressure to expand their reach and aggressively deliver greater sales. Consequently, many PAYGo solar companies have begun to extend their lending terms up to 36 months, to market a lower daily financing rate and rapidly grow their customer base. But this lower daily financing rate, while appealing to the consumer, masks a troubling reality. Given the limited useful life of a solar home system, and warranty lengths of 2-3 years, by the time a family owns the system outright, it is often on its last legs and will soon need to be replaced. Customers often don’t anticipate the need for system replacement, particularly so quickly after they finally own their first system outright. Clearly, this approach fails to fulfill the promise of PAYGo.
Given our parent company’s history in the microfinance sector, we are often inclined to ask: “What can microfinance teach us?” The question is particularly relevant when considering client protection. The Smart Campaign has made responsible consumer practices the gold-standard of microfinance, and those working in off-grid solar would be wise to embrace a similar process of client protection certification. In the meantime, embracing the following practices can help those in off-grid solar expand at a rapid pace while simultaneously establishing customer protection principles:
Increase Transparency in Pricing
When selling to the bottom of the economic pyramid, we must recognize that many clients may not fully understand the full cost of PAYGo financing. In order to communicate with our customer base responsibly, all marketing material should clearly state the cash price of the solar package, as well as the full price that will be paid over the loan tenure if the product is financed through PAYGo. At BrightLife, we are committed to this dual pricing disclosure in order to ensure that all our customers are able to make informed purchases.
Invest in Customer Education
Responsible financing means meeting customers where they are. Training sales agents to clearly and patiently explain payment terms and contract details to customers is essential to ensuring a fair deal for all those we serve. But while a commission-based agent model tends to be standard for PAYGo solar sales teams, it is not always reasonable to expect agents on commission to provide extremely thorough customer education, since it might lead to discussions of customer concerns that could result in fewer sales (and thus a lower agent salary). Because of this, PAYGo call centers tasked with after-sales follow-up may be more suited and incentivized for this purpose, since these are full-time salaried employees. Call center employees can check in with customers to ensure they are satisfied with the product, while also taking the opportunity to provide education on product financing. They can clarify any confusion around the loan and payment terms, and make sure that the customer was not misled by the sales agent. Most PAYGo companies, BrightLife included, will give back all or most of the deposit, if a customer is not satisfied with the system and wants to return it within the first month. And establishing a reliable point of contact shortly after sale also empowers customers to understand and fully take advantage of their product. This is important because any client can decide to stop paying for PAYGo solar at any time, so providers have to keep customer satisfaction high.
Maximize Connections with Customers
While our primary connections with customers may involve providing access to off-grid energy, it is useful to consider adjacent customer needs we may satisfy. In our own work at BrightLife, providing clean energy access also provides pathways to financial inclusion, which gives customers additional tools to improve their standards of living. While isolated energy access has true customer benefits, it is always important to consider what more can be done in pursuit of holistic impact.
Establish Clear Investor Expectations
While the desire to scale is pervasive in our work and often encouraged most by those holding the purse-strings, our role as customer-centric, responsible lenders must always come first. Being incredibly clear from the start with investors that responsible lending is an essential priority can help this industry live up to its own standards. Doing so will help us to cultivate responsible investors—those who are truly socially-minded, with the patient capital necessary to scale on reasonable terms. And in this process, investors should prioritize financing PAYGo expansions that continue to reach the customers for whom this technology was invented—the bottom of the pyramid and rural populations.
Those of us in PAYGo solar have an immense opportunity on our hands—but also an immense responsibility. We can play a part in bringing clean energy access to some of the world’s most vulnerable populations, helping to improve the quality of life for countless families. Yet we are not fully taking advantage of this opportunity, nor fulfilling the promises we make to our customers, if we fail to do so responsibly. Committing ourselves to higher standards will both enable us to live up to our own impact goals, while bringing about better customer-level outcomes. It is time for us as an industry to take these responsibilities seriously, and to resist the pressures that may persuade us otherwise.