Taming the Strange Beasts: Servicing and the Future of PAYGo
This publication details the unusual structure of pay-as-you-go (PAYGo) solar companies: they combine manufacturing, distribution, and financing to offer a single, intuitive product to the end client. PAYGo value chains are already beginning to become decoupled as more and more companies outsource manufacturing and software to specialist providers. But the solar product and consumer financing parts of the PAYGo business are still tightly linked through their shared servicing functions. Every PAYGo loan installment requires a device code to be sent. Every PAYGo device malfunction leads to nonpayment on a loan. This integrated servicing is at the heart of PAYGo solar and is the focus of this paper.
For this research, 12 leading PAYGo firms were contacted and asked about their backup service arrangements. Several had plans for investors or internal units to take over country operations and wind down a portfolio. One had taken over a competitor’s portfolio and run its systems, with some success. The rest had no backup plan. Luckily, there are several options that can be deployed in the short-to-medium term.
- Contingency plans where investors take control of the originator’s systems and rehire key staff can help to maintain continuity should the servicer falter or fail.
- Financial institutions—whether banks or nonbanks—can provide finance directly to PAYGo consumers and become the servicer.
- Licensors of PAYGo software already have detailed knowledge of the most complex servicing component. They could explore offering backup servicing as an additional service.
- Competitors can arrive at bilateral agreements in certain markets to service each other’s assets under pre-agreed conditions. They can also purchase one another’s loan books and service active customers, if their systems are compatible.
- As PAYGo solar and other asset finance sectors grow, there may be a large enough market to support a commercial backup servicer, which could operate on its own or as part of an investor or service company.