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Consolidation in the energy sector: how will it affect collections and recoveries? 28 SEPTEMBER 2020

Consolidation in the energy sector: how will it affect collections and recoveries?
5 minute read

The UK’s energy sector is thriving whilst constantly changing and evolving. The last decade has seen a number of extremely high-profile mergers and acquisitions across the sector, contributing £64 billion to Britain’s economy and a tremendous contribution to the UK GDP.

So how will this new dynamic affect collections and recoveries in this sector?

The Big Six becomes the Big Five

The energy sector contains six major companies (‘the Big Six’): British Gas, EDF Energy, E-ON, Npower, Scottish Power, and SSE. Although these companies own a huge stake in the energy sector, they also face fierce competition from smaller operators who are offering affordable prices to new and existing customers.

There have been a high number of mergers and acquisitions over the last few years as the energy market continues to compete on the only variable the customer truly cares about: price. Ten electricity and natural gas suppliers have folded their businesses altogether within the last year alone, according to Global Data.

In any time of uncertainty, smaller businesses tend to be at risk compared to hugely capitalised bigger competitors and tech-driven efficient providers, such as Octopus energy, which acquired Co-op energy.

Even the largest companies are not immune; OVO acquired SSE, and in December 2019, it was announced that E-ON would acquire Npower. The Big Six are becoming the Big Five, and one of those will be a new name. Times are changing.

We will see increased acquisition of financially higher-risk customers?

With the growing competition in the energy market, the market continues to compete predominantly on price. This has made the acquisition of new customers crucial, resulting in the UK government encouraging customers to switch suppliers.

This, in turn, has increased organisations’ risk appetite, with energy suppliers taking on customers who would normally be regarded as financially higher-risk in order to boost market share. In the UK, the situation has been exacerbated by Ofgem guidance, allowing customers to switch suppliers while in debt (albeit only if those debts are less than 28 days old).

It will be key to assess risk and make early contact with customers

Merging companies enables access to greater economies of scale, driving increased profitability. However, it also presents some very practical challenges with consolidating portfolios, processes and handling this additional risk. If not monitored and managed carefully, this could result in increased cost and losses.

The key to mitigation is to streamline early credit risk detection and reduce the overheads associated with delinquent account management activity. Once a debt has been identified, early contact is key. Offering online self-service tools has been widely used in other industries to help manage customers in debt. Recent surveys show that only 11% of respondents in debt contact their supplier to discuss repayment options, so getting hold of people early in and finding the correct approach to reach them is critical.

By offering an online service, accessed 24/7, customers can assess options available to them without the perceived pressure of discussing them with an agent. Putting power back into customers’ hands ultimately improves their debt collection experience – which is significant, given that just 21% of respondents felt their supplier had been helpful regarding their last debt case. This approach can also help cut costs too.

Where should you start?

Ultimately, utility companies need to identify and treat credit risk early to open up a wide range of customer communication channels.

With the right software and automation, these communication activities do not necessarily increase overheads. By making sure that subsequent collection activities are efficient – empowering the customer to make the right choices – utility companies can rehabilitate delinquent customers to encourage their loyalty enabling higher lifetime value and bringing down acquisition costs.

Want to find out more?

At Arum, we are always discussing new ways to improve collections strategies and customer contact. We are proud to offer a unique range of services such as: Robotic Process Automation, omnichannel orchestration, voice analysis, predictive analysis and many more.

Ayomide Fatuga and Bickita Karim
Senior Consultant and Business & Systems Analyst

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