Title: How Unbundling Pay-As-You-Go Solar Drives Market Expansion
Presenters: Lesley Marincola, CEO at Angaza; Hugh Whalan, Group CEO at PEG Africa; Jacob Winiecki, Senior Associate at BFA
Description: Recently, the pay as you go solar system industry has seen a dramatic shift away from vertical integration, to unbundled products and services. Unbundling allows specialization along the value chain, allowing businesses to focus on delivering hardware, software, and distribution services for customers — rather than attempting to do it all. Angaza was the first in the industry to offer unbundled solutions serving best-in-class device manufacturers and last-mile distributors. By focusing on the consumer financing aspect of the value chain, Angaza developed specialization in software and remote metering and monitoring technology.
On November 20, 2018, Angaza CEO Lesley Marincola joined a GOGLA and BFA co-hosted webinar to discuss how unbundled pay-as-you-go business models are driving market expansion. The BFA / GOGLA webinar presented additional perspectives from BFA Senior Associate Jacob Winiecki, and PEG Africa Group CEO Hugh Whalan, moderated by GOGLA Program Manager, Quality and Consumer Protection Drew Corbyn. Watch the webinar recording below, review the slide deck, or read Lesley’s transcribed responses below.
Webinar Transcript Featuring Angaza’s CEO
[Drew Corbyn] Lesley, great to have you join us today. Can you introduce Angaza quickly?
[Lesley Marincola] Good morning or evening, wherever you are in the world. Angaza is a technology company serving last-mile distribution businesses in emerging markets. We focus on the technology piece of the value chain. Our pay-as-you-go technology platform makes life-changing products from solar lighting systems to solar water pumps affordable to rural off-grid homes around the globe. We’re a B2B horizontally integrated company. So, this means that we focus on scaling through the formation of two types of partnerships: directly with product manufacturers that build the hardware, and product distributors that sell that hardware to end consumers.
We were founded in 2012. We have over 50 employees across our San Francisco and Nairobi offices. A large majority of staff are product and engineering employees because we’re a technology business. We currently work with over 150 distributors across 30 countries around the globe, so we really have been a part of seeing pay-as-you-go spread worldwide. And I’m really proud to say that our partners have sold over 1 million pay as you go solar products on our technology platform to-date.
[Drew Corbyn] Cool, fantastic. Thanks Lesley. And especially for joining from California where it’s still fairly early in the morning. The first set of questions I’d like to talk about is a look at the new and evolving business models and how technology unbundling is playing out. Now, Lesley, you saw this opportunity ahead of time. You said you were formed in 2012. So, you thought of this at an early stage. What made you confident that this was the way to go?
[Lesley Marincola] When we were first just starting out pay-as-you-go was definitely not a household term. But what we saw was that there was already specialization in the industry. There were manufacturers that were producing these solar devices and there were distributors that were specializing in distribution and selling those devices to end users. And these were often separate organizations who were actually partnering together to deliver energy access solutions to consumers. So, they weren’t necessarily pay-as-you-go companies. They were probably selling those devices for up-front cash to end-users. But when you looked at the whole market there was actually a large swath of the market that was already specializing in a particular piece of the value chain. So, we saw that. We also saw the pervasive problem facing the whole industry. And that was the lack of consumer financing options for quality solar products.
And we founded Angaza based on two principles: We wanted to solve the problem of the lack of consumer financing and essentially focus on building a solution for end-user financing which we saw as one of the biggest energy access challenges. And we decided to do that with a B2B, or business-to-business, model because we wanted to take advantage of the specialization that already existed in the market. And we thought that by focusing on the technology we could most effectively develop and deliver a solution to that problem at scale. And we started bringing together partners both on the manufacturing side and the distribution side pretty early on. And a lot of the early distributors that we worked with introduced a pay-as-you-go model to their operations. So, where as they were selling up-front cash products, they saw the ability for pay-as-you-go to increase the number of consumers they could sell to and thus, they added pay-as-you-go.
[Drew Corbyn] Let me ask about you’re offering to distributors. You offer the software platform, the cloud services. Do you also provide guidance on the business model? Such as pricing and some of the consumer insights that you’ve learned with working through such a wide range of distributors?
[Lesley Marincola] Yeah, absolutely. We certainly help distributors, especially ones that are new to pay-as-you-go, think through all of the moving parts of setting up a pay-as-you-go business, including pricing of the product. That being said, we are careful to recognize that we work across 30 countries now and pricing a pay as you go solar home system in one market may be very different from pricing that same piece of hardware in an entirely different market. So we make sure that we’re careful to provide recommendations based on industry best practices that we’ve seen. But at the end of the day, it’s always the distributor’s decision on how they price their products, how they run their operations, what kind of follow-up they have with their client base, et cetera.
[Drew Corbyn] And how do your clients, your distributor clients, like which hardware to go for – what choices to they have?
[Lesley Marincola] So, right now we partner with over 15 manufacturers, so we have a very wide range of pay as you go solar product offerings. Basically, from smaller portable solar lighting systems to, I think our sweet spot, the most popular type of product are the 6W to 12W solar home systems. And then we support solar home systems that are up to hundreds of watts that can power household appliances.
We also have a number of distributors that started out selling pay as you go solar home systems that have now increased the variety of products that they sell to their client base. So they might have introduced smartphones or cookstoves as well. And sold those on a pay-as-you-go basis. So this is sort of an exciting trend that we’re seeing in the industry. Solar distributors thinking outside of just the solar lighting space to provide other life-changing products to their clients.
[Drew Corbyn] Yeah. Nice, nice. So, it’s common for a distributor to offer hardware from a number of different manufacturers. To see what fits their market, and their customer base, and the ability to kind of pick and choose from the range of manufacturing partners that Angaza has. Cool.
And now, a poll question for our audience.
The question is, “Which feature of technology unbundling will be the most important driver of PAYGo market expansion?” So, I invite the audience to fill that out.
You have the option of “New types of business models,” “New types of companies taking on distribution,” “Increased profitability of companies in the PAYGo value chain,” “Increased tech innovation from specialized tech firms,” or “Something completely different.”
At the moment we have “Increased profitability of companies” leading the way. We have “Tech innovation” catching up. But it seems that these two are the leaders.
[Drew Corbyn] Do you agree Lesley? What’s your perspective?
[Lesley Marincola] Yeah, I definitely agree with those leading top two. I think as we start to see more successful companies in the industry then an increasing number of companies will follow that for sure. And of course I’m biased because I run a tech company, but I think that increased tech innovation on the smart hardware side of things, on the ability especially to collect usage and monitor usage of monitoring data back from the products opens up a whole range of opportunities. Especially when you get into thinking about predictive data analytics and how they can help distributors make smarter decisions about their operational choices.
[Drew Corbyn] Yeah, interesting. One of the other options, Lesley, was that new types of companies were able to do distribution, and I’m playing off the PAYGo value chain. Clearly Angaza has a unique perspective on this with 150 distribution partners.
Have you seen the profile of distributors change over the course of the years? Are you now seeing more local entrepreneurs and national companies be interested in and successful in this?
[Lesley Marincola] Yeah, you know, if I had to vote for one of these that might have been the one. I think we’ve seen a lot of innovation variety in terms of the type of distribution companies that are playing in the pay as you go solar market. So, certainly we see a wide range of sizes and a mixture of local, the sort of more grassroots distributors, and then distributors who are typically run by expats. They might have headquarters in the US or Europe, but they have established local operations across various regions or various countries in emerging markets.
I’ll sort of profile two types of companies that we’re particularly excited about, that are sort of new entrants to the pay as you go solar market. Where as before, the quote “typical distributor” was really a distributor from its beginning, was focused on the distribution of solar home systems to consumers, now we’re seeing that, for example, microfinance institutions who – these are organizations that are used to administering cash loans to consumers, but they are now sort of adding a layer of hardware distribution on top of their existing agent network. Such that they can offer these hardware solutions to that same group of consumers. And interestingly enough, a lot of these microfinance institutions are targeting a different sort of tier of buying power of consumers with pay as you go solar. That they might offer a pay as you go solar home system to a consumer that might not have qualified for their cash loan, but they can learn a lot about that consumer’s buying power and risk level and hopefully, ideally, eventually get them to be eligible for their cash loan program. So, microfinance institutions are really exciting because they have a large network of rural distribution already.
One other one that I want to profile are telecoms. Telecoms have very, very wide networks in emerging markets. Of agents, typically, agents who are involved in the distribution of airtime or mobile money agents. And a number of telecoms are starting to realize the opportunity of actually selling hardware, selling pay as you go solar hardware, through these same distribution networks. I would say that it’s, you know, slow moving to get off the ground because a lot of these telecoms are giant companies that do move pretty slowly. But the fact that a number of them are starting to recognize the opportunity to sell additional services to their client base and really reinforce their own brand, we think is really exciting because it can really open up the scale of this market.
[Drew Corbyn] Interesting. For sure, the market is, you know, so huge that new businesses, new entrants must be looking at this and enticed by some of the opportunities that it brings. Now, I’d like to invite the audience to ask some questions. Please type it in the question box.
“To what extent will better ways of assessing customer credit and credit scoring matter to scaling the sector and opening this up to more investors? Or is this just a big rabbit hole?” That was asked by Andrew Griffin.
Lesley, would you like to field that question?
[Lesley Marincola] Sure. We believe very strongly that the sort of next level of maturity of a lot of these PAYGo operators will come from really being able to understand the client risk levels. And taking action on that. So, I guess I want to first clarify when we think about client credit scoring this doesn’t mean “Should you sell to a client or should you not?” It could mean, “Should you sell a 3W product to that client or a 20W product to that client?” So, it’s really sizing the offering to that particular client and then really helping drive a lot of the operational decisions that happen post-sale. So, you know, if a client looks like they’re falling off their expected payment trajectory what sort of actions should the distributor take to follow up with that client and make sure they know how to use the technology and make payments, for example.
So, I guess the question was, “Is it a rabbit hole?” Definitely, I think we need to be careful that it probably is not the same data model that should be used on every single case, across every single market or product or client base. But I think there is a ton of information that payment, client, and product data can bring to just really help make these distribution companies profitable because they are selling the right product to the right set of clients.
[Drew Corbyn] Cool. Thank you. So, it’s just a matter of assessing the right product for the right client and understanding what is their ability to pay and finding the right match.