Unbundling is leading to significant innovation in technology and business models in the PAYGo solar sector. Instead of trying to do it all, PAYGo solar companies are now looking to specialize in one or two pieces of the solar puzzle including hardware, software, distribution, consumer financing, and value-added services. If successful, this unbundling will create more product options and greater flexibility for distributors, financial service providers, and end consumers of solar energy.
Just four years ago, there were only a handful of vertically-integrated PAYGo providers, each with their proprietary hardware (solar home systems + remote lockout PAYGo tech) and software (customer relationship management platform and smartphone apps). These were built and managed internally, with little interoperability.
Before signing up their first customer, new market entrants had to invest significant equity in designing hardware and software to create the PAYGo experience for consumers. This repetitive reinvention had the twin effect of constraining growth in the sector while also limiting the breadth of PAYGo-ready products on offer to low-income consumers.
Introducing PAYGo 2.0: Unbundling for greater flexibility
A sea change has taken place over the last few years as a combination of specialized providers and market forces have reshaped PAYGo from a series of standalone companies into a value chain of discrete units that can be linked together in various combinations. Companies like Angaza and Paygee have emerged to provide comprehensive PAYGo platforms that deliver easy-to-integrate remote lockout hardware options to product manufacturers, and software tools that enable distributors to deploy PAYGo models in their markets without having to build and maintain proprietary software. These PAYGo platform providers have invested heavily in building integrations with mobile money providers and payments aggregators, effectively eliminating the costly and lengthy process for PAYGo operators to get operational with digital customer payments.
This unbundling lowers startup costs, which allows a second generation of PAYGo operators, or PAYGo 2.0, to enter the market more easily and nimbly without building or owning their own hardware or software;, but instead they specialize in particular elements of the value chain such as distribution, consumer financing, and value added services. With this unbundling, companies wishing to start a PAYGo business from scratch in 2018 have dozens of PAYGo-ready solar products to choose from and a growing set of PAYGo platforms that can handle customer relationship management, lending, core token/key generation, and encryption for remote unlock functionality. These innovations all help to expand the potential PAYGo solar market and are paving the way for other life-improving products, such as solar water pumps, LPG cookers, and appliances, to be sold on a pay-as-you-go basis, further expanding the range of livelihood-improving devices within reach of low-income consumers.
Several of the first generation of PAYGo companies have also begun unbundling by licensing their product offerings and software platforms to companies outside of East Africa to spin off pieces of their technology as standalone businesses. Additionally, companies such as d.light and Greenlight Planet, which previously specialized in the design and manufacture of high- quality pico solar products for the cash-sales market, have now expanded into PAYGo-ready products that they sell through both distribution partners and direct business-to-consumer (B2C) channels.

Watch how FIBR and PEG Africa are helping PAYGo agents better serve customers

PAYGo 2.0 in action: PEG Africa
FIBR has been working with PEG Africa, a leading PAYGo operator in West Africa, to explore the implications of unbundling on business models, and the availability of offerings for low-income consumers. Our work with PEG Africa has focused on better understanding:

1. The role of digitizing financial operations in an unbundled business model
2. Innovation around last-mile distribution and agent network management among this second generation of more nimble, specialized PAYGo operators
3. How players can adapt to rapid shifts in technology

In many ways, PEG Africa is a pioneer of the PAYGo 2.0 model. For over five years, PEG Africa has been providing off-grid solar energy solutions to consumers in West Africa. The company made an early strategic decision to outsource hardware and software, and instead focus on last-mile distribution and consumer financing. Thanks to an existing customer base and solid experience in consumer financing through MFI partnerships, PEG Africa was able to become the first player to take advantage of unbundling and deploy PAYGo at significant scale through partnerships with M-KOPA and d.light.
PEG Africa co-founder and CEO Hugh Whalan describes how the company approached the opportunity:

“We had seen the industry move from lanterns to solar home systems to PAYGo solar home systems in just four years. We knew technology was moving fast and that others could do it better than us, and wanted to avoid investments in something that got commoditized quickly. We also believed (and still do) that the value was not in technology but in the customer, and profitably servicing them.”

Key Obstacles and Opportunities for PAYGo 2.0
While PEG Africa is providing early evidence that companies can specialize in acquiring and owning the end-customer relationship without investing in proprietary PAYGo tech, it’s not yet plug-and-play since there are interoperability considerations to resolve. Different software protocols mean that solar hardware cannot be managed in a new system if PEG Africa switches providers. Other livelihood-improving devices sold through the PEG Africa channel without PAYGo tech, such as televisions or smartphones, aren’t easily tracked in a single PAYGo platform and need cash sale and loan management tools that operate outside of the core PAYGo system. Currently, to fully make use of their data, PEG Africa and other PAYGo 2.0 players need to build analytics functionality outside of their existing PAYGo platforms to download data, run manual analyses, visualize results in a separate dashboard tool, and even build front-end smartphone apps to capture data not currently included in the licensed solution. As the sector expands and more companies take advantage of unbundling, these areas will be ripe for additional specialization.
Fortunately, these potential challenges seem to be outweighed by the benefits of unbundling. By outsourcing hardware and software, PEG Africa can:

1. Select the PAYGo software platform that best fits its operating and financing model
2. Add hardware from different suppliers as and when needed
3. Pick and choose the PAYGo hardware options that best meet the needs of its clients.

Like PEG Africa, PAYGo operators can take advantage of best-in-class solutions for different pieces of the value chain rather than being locked in to a single monolithic platform. This choice gives PEG Africa the flexibility to customize the tools (i.e., smartphone apps and commission models) their agents use to sign up new users, provide post-sales support, and drive repayment behavior. As a result, their end-customers enjoy more choice on hardware and financing options and offerings better tailored to their needs.
In the next blog post in this series, we explore how FIBR and PEG Africa approached the digitization of field operations in an unbundled PAYGo world, describe the tools and approach used to design and deploy a smartphone app for the company’s agent network, and lessons learned in integrating these tools with partner PAYGo tech platforms and processes.

FIBR stands for Financial Inclusion on Business Runways and aims to learn how to transform emerging business data about low-income individuals and link them to inclusive financial services to deepen financial inclusion and its impact. FIBR is a project of BFA in partnership with Mastercard Foundation.

Source: https://medium.com/f4life/the-promise-of-unbundling-to-reshape-paygo-solar-e8fbd384d5a