Auto-switching for energy customers is an opportunity: we must get it right

Ambitions on increasing customer switching run into one problem: it’s a tedious business, and one that can leave you uncertain, on switching sites, whether you really have got a better deal. New auto-switch services could change that. Last month Janet Wood spoke to Flipper and Swuto, both hoping to take the pressure off domestic consumers, and Energy-Scanner, which aims to get small businesses more active.

Can they help disengaged customers take action? And will they bypass switching sites? Read the full article

 

Zoe McLeod, an independent consumer expert and director of OnTheRecord, responds:

At a time when the CMA is grappling with how to engage consumers in the energy market, automation could be the game-changer everyone is looking for.

That is, if we get it right.

Automatic switching services, such as Flipper, offer a rare opportunity to overcome historic barriers to engagement, and to help customers, including the most vulnerable, access the cheapest deals.

Having to signup just once – to give permission to share your energy consumption data, and to consent to be regularly switched – removes substantial ‘hassle factor’.  Auto-switching requires less time, confidence and fewer skills. A phone-based sign-up service could also help those who do not use the Internet.

Advisors providing switching support to vulnerable consumers could rest assured that once they had hand-held clients through the sign-up process that they would remain on a competitive deal, rather than rollover onto a higher cost tariff.

And importantly, automatic sharing of personal energy consumption data, (with consent) could help ensure customers actually switch to a better deal – ending use of direct debit payments or switching site estimators as the basis for switching calculations.

But …

As much as I’m excited about auto-switching, as always the devil is in the detail. We also need to be prepared for any unintended consequences, especially of widespread use.

Unintended consequences

Having millions of consumers frequently switching every year may seem like a market economist’s dream, but increased churn also increases costs for suppliers. Might too much switching be a bad thing? Is there is an optimal switching rate beyond which the impact on energy prices is counter productive?

If automation grows, suppliers’ back office systems – billing and customer service – must be ready. In particular, prepared for same day acquisition of customers en masse, when they launch a competitive deal or another supplier’s offer ends. Recent problems faced by smaller suppliers who experienced rapid growth are a reminder of the challenges.

With more ‘short-term customers’, companies would have less flexibility to manage cash flow across the year.   This could make it harder to recover debt – and result in: the withdrawal of fixed direct debit payment options that allow consumers to budget across the seasons; shorter debt paths for those in financial difficulty; and further supplier reluctance to take on high-debt risk customers. It may increase the transfer of debt between suppliers (and debt blocking)– all with cost and customer implications.

Linked to the above, will companies actually want auto-switchers and what impact will this have on prices?  Some suppliers suggest they are only able to offer their cheapest deals because they assume a certain proportion will revert to Standard Variable Tariffs (for which there is a bigger margin) at the end of the product’s fixed term.

If companies know the customer is an auto-switcher, who will definitely switch, will the incentives strong enough to compete for these customers?  In a worse case scenario we may see unattractive terms, longer contracts and higher early exit penalties. In addition, suppliers may only offer low or no commission rates for auto-switching sites.

In short, while automation offers fantastic opportunities, decision makers must keep a watchful eye on how the market responds. Further action is also needed to ensure that auto-switching services can develop in a way that most benefits consumers.

Making the most of the opportunity

To achieve this the CMA must improve access to data. Regulation is needed so that third party services have, with customer consent, have easy access to the right data, in a timely way.  Data should include time of use consumption for all customers, not just peak and off-peak consumption totals – so that it can be assessed if a customer would be better off on a time of use (TOU) deal or a different offer. Warm Home Discount information is also needed for accurate personal calculations.

New automatic switching services arguably have an opportunity to build trust where other price comparison sites have failed.  To achieve this they must be transparent, accurate and crucially assess all deals in the market, not just those with whom they have commercial arrangements.

And lastly the benefits of automated switching services should be available to everyone. Services must be inclusively designed from the outset. Given the nature of energy as an essential service, providers would do well to explore how they can work with organisations that help customers in vulnerable situations.   In this way, auto-switching services may genuinely be a game changer for good.

www.zoemcleod.com

 

Read more responses to the article here

 

1 comment for “Auto-switching for energy customers is an opportunity: we must get it right

  1. New Power
    April 11, 2016 at 8:37 AM

    Dr Tony West of Forward-curve says:
    This automatic customer switching implies the choice is only about price. What about customer service?
    Will there be controls to ensure suppliers can handle huge volumes of switchers because be definition, there will always be one supplier cheaper than the rest so all switchers will be directed to the same supplier. How will they manage their price risk?
    What if this supplier goes bust, what chaos will this cause and what will that do for trust?

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