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Finance | July 2015

Bridging the Gap

Pay Point caters to customers in Chhattisgarh´s Naxal belts and Ekal Batti zones as the people here are willing to pay for electricity, but do not have the mode to do so. Our services bridge this gap between power providers and consumers, shares Romil Meghani, Director, Pay Point India Network Pvt. Ltd, while talking about his company´s new pre-paid services for the power sector.

Despite the power sector gaining momentum following the new coal mine auctions, problems related to collection continue to hinder the segment´s growth. The irony here is that consumer willingness to pay bills, specifically in rural areas, has been hindered by lack of proper infra¡structure to facilitate the same.

In an interaction with POWER TODAY, Romil Meghani, Director, Pay Point India Network Pvt. Ltd, gives a possible solution and points out that collection is also central in the scheme of things. Others, ranging from Managing Directors, Director-Finance or Chief Engineers in this field too have one thought in common - that while supply is regulated, there still need for work to be done on collection of bills. ´Ever since we got independence each election has promised ´sabko bijli-paani milega´, but it is a known fact that electricity has not reached everyone´s homes as yet, which means that collection counters are even more sparse. We noticed the long queues at places that did have collection centres and identified it as a big pain area,´ Meghani states.

A distributer of FMCG services, Pay Point bridges the gap between customers-service providers and vice versa, through a network of retailers. The company has recently also launched its new ´prepaid model´ in Chhattisgarh, which is a first in India. ´This began in Chhattisgarh in 2012 as a pilot and the company did not go to the Naxal belts or the Ekal Batti areas right away. Starting with Raipur in 2000, the whole process was an ongoing experiment full of trial and error in learning the system, terrain and people. Full-fledged operations began in 2013,´ he shares.

´It has evolved effectively for the power sector because the need here is so high. We have been in Chhattisgarh for quite a few years and it is a very difficult terrain especially when you consider that there are Naxal belts and it is an Ekal Batti zone. We noticed that the customers are willing to pay despite this, but have no mode to do so,´ he elaborates.

First thing, Pay Point realised was inadequacy of the system and infrastructure and thus established over 1,000 retail touch points in the state, which service over 50 lakh people.

´Our approach is to service people having difficulty in access and the state has been receptive. We´ve collected over Rs 150 crore for the Chhattisgarh State Electricity Board (SEB) till date. Our new prepaid model has also received good responses from service providers and regulators who think that this is something to watch out for,´ he shares.

Advantage pre-paid
The new pre-paid model was born from a very simple observation according to Meghani. On the ground-level, the queues, more so in the rural areas, are extremely long. Besides this, the situation is such that customers have to travel for hours, walk or cycle to the payment counter where they might be given a token. Now, this number may be for a few days later too, which means that a day´s worth of time and money was wasted.

´To deal with this problem people wait for three months before they pay their bills, as there is a grace window that they are allowed before being faced with electricity cut. So they wait for those three months and then towards the end of that period they will go and pay all the three bills together. But while this alleviates their problems it adds strain on the already struggling SEBs as their cash flow is disturbed,´ he explains.

Extolling the benefits of Pay Point´s new model he points out, ´An SEB may collect anywhere from Rs 10,000-20,000 crore every year, but obviously have high cost of fund, so even on a 3-day interest the amount they collect is a huge hit. By doing business with us, they have money in hand before customers make the payment.´ He claims that this provides three advantages.

The first being that there are no cost of funds and no outgoing interest cost as the money comes in before even the payment is made. For example, if a rural customer makes a payment today, it usually takes another two-four days on average to be processed.

This money-in-transit period is eliminated by Pay Point.
Secondly, the cost of collection is much lower for e.g. the average cost of collection for SEBs is anywhere from Rs 8-14, while here it is a very small fee which is probably half the cost of collection, around Rs 4-5.

Third advantage is that there are zones where no one pays either because the bill amount is very small or subsidised or the payment centre is very far, and while people don´t mind paying, the hassel involved in paying a Rs 10-20 bill is such that he spends Rs 50 for transport and invest one whole day for this purpose. ´We have thus opened outlets in all such geographies in Chhattisgarh and in a lot of zones there will an outlet within a kilometre, walking distance or maybe a very short bus ride. So broadly in terms of finance, the power provider gets his money on time, the cost of collection is lower and there is no cost of interest,´ he states.

Technologically, these transactions are all real time, so the moment a payment occurs, providers can through an online login see which zone is collecting how much money. ´This real time system is currently not available with a lot of service providers in India and we have built a lot of competitive edges around it, e.g., there is no processing time required - if today is your due date, our technology is such that you can make your payment at 11:59 PM and it will be updated immediately,´ he informs.

But what about the rest of the country? Maharashtra has a similar Naxal problem area in Gadchiroli. When asked about the feasibility of implementing this programme here Meghani was fairly optimistic.

´A similar model can be implemented here and across the country. We have approached a lot of providers already, including the ones we already work with and those we don´t. These are not only PSUs, but private players also, but there is a protocol and tenders, etc. due to which I can´t give names. However, everyone seems very receptive as this addresses the pain area and we do it cheaper, faster and more efficiently,´ he says.

Pursuing PSUs
While a couple of the approached SEBs have already flouted tenders as per protocols, some are in the pilot phase, while others are still deliberating the proof of concept (PoC). Meanwhile, the ones Pay Point is already working with like BEST and Reliance Energy don´t need tenders but modifications on T-1 basis. However, these organisations are enormous and it might take time.

Persuading PSU about their model was an uphill task for the Pay Point team adds Meghani, ´It is a challenge to convince any PSU that we are going to handle public money and they were very apprehensive initially. I will acknowledge that we didn´t have the same measures we do today on day one itself, but I would like to believe that we´ve been in the business long enough to simply ´copy+paste´ the model where ever we go.´

He further expanded on the safeguards they have in place, ´There are two kinds of checks and balances - one is related to technology and the other to field operations, which is the execution. Broadly we´ve tried to inculcate high regulatory norms into our system.´

For operation and implementation, they follow very strict and thorough know your customer (KYC) guidelines.

So, if someone wants to become a franchise, all relevant documents like the shop and establishment agreement, shop payment, ownership/rental agreement are taken. In a lot of cases applications are judged based on strict requirements like the shop owner has to be legitimate, i.e., been in business for a long period of time. Another parameter is a prepaid model for the shopkeeper as well.

A shopkeeper can accept bills for only up to the value that he/she has already deposited with Pay Point. Therefore, if the shopkeeper has deposited Rs 50,000 with Pay Point, his operation is locked and the system will stop generating transactions as soon as this amount is recovered. The value limit is determined through receipts, which are tracked on the system and as soon as receipts totalling the deposit amount are issued, his system is shut.

Technologically upgraded
Technologically, the company follows the best global coding norms, has a disaster recovery system, authentications and validations, and certifications like SSL. They also have the RBI licence for the Payment and Settlement Act, for which a lot of compliance, anti-money laundering, CFT and many other guidelines are followed. While, unable to give numbers and percentages in terms of how much their model would save for power providers, Meghani is confident that the figures are high. ´I can comment in terms of collections for e.g. if I collect ´x´ number of bills for them and their cost of collection was Rs 12, mine is Rs 5. Thus I can straightaway compute that we´ve saved them Rs 7 per transaction. However, I don´t think that I am qualified to quote an exact percentage of savings.´

´However, I can say that it is definitely substantial and the SEB´s attitude towards our model has also been very receptive. When we approach them with this they are really willing to take it up and call a tender for it, so if you take their encouraging attitude as an indicator, they must see some benefit to our services,´ he points out. When asked about the motivation behind this model Meghani was very pragmatic, ´You see, everyone is running to service the top 8 per cent of the population, but it is the bottom 20-25 per cent that actually needs such services. The country needs to realise that the moment we help this segment rise even one level up, the economy will see a huge boost and we are focusing on that.´

´We want to go out there and service these people, and when they upgrade to mobile applications, online transactions or want insurance and any other services, they may have some brand loyalty,´ he ends.

Jocelyn Fernades

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