Variable recurring payment (VRP) is the latest development in UK Open Banking. It offers an innovative way to initiate recurring payments or money movement securely by leveraging the Open Banking framework. VRP also provides merchants and businesses with a faster and more cost-effective alternative to direct debit or card-on-file transactions.  

Conceptually, VRP is similar to direct debit payment, but it facilitates faster movement of funds than direct debit’s three-day working cycle. As a result, VRP can offer more compelling payments propositions by allowing businesses and consumers to seamlessly set up and execute recurring payments. 

While payments using Open Banking are not new, payment types previously enabled by Open Banking do not allow customers to make an open-ended series of payments with variable amounts to a specific payee over a period of time. Instead, recurring payments to a payee previously had to always be for the same amount. With many consumers using a growing number of subscription-based services, the flexibility of VRP is likely to make it a popular option to pay for services such as Netflix, Spotify and Sky, to name a few. 

How is VRP used under current regulations? 

The current UK regulations allow VRP to be used only in ‘sweeping’ use cases. Sweeping automates the movement of money between accounts held by the same personal or business customer. It can be used to enable savings, investments and loan repayments.  

Regulators supported these uses to allow customers to easily move money to avoid overdraft charges, switch current accounts to a new provider with preferable terms or products, and optimize their savings by moving money to accounts with better interest rates or lower fees. 

However, this limited use of VRP is likely just the beginning. VRP has the potential to enable innovative embedded finance use cases and generate new revenue opportunities that will accelerate the move toward Open Finance.  

We believe that VRP is the next logical offering for Open Banking payments, and the rest of this blog focuses on the advantages it offers and how it might work. 

How will VRP be used beyond sweeping? 

VRP can enable a variety of use cases that lie beyond the current scope of UK regulations. Going forward, it may be able to facilitate the following types of payments: 

B2B payments: VRP can make it easier for business banking customers to pay staff, suppliers or government departments (e.g., tax payments).
Retail payments: VRP can facilitate one-click payments to online merchants (including split or delayed payments) and point-of-sale in-store payments.
Subscription payments: VRP can enable one-off or repeat personal or business payments where the amounts might vary each time (e.g., utilities, memberships, donations).
Peer-to-peer payments: VRP can enable payments between any two users (e.g., for bill splitting), potentially integrating with online wallets.

How will merchants benefit from VRP? 

Cheaper payment processing: VRP offers a cost-effective alternative to card payments. Businesses can save the costs associated with interchange fees, chargebacks, fraud losses and compliance overheads. 
Better cashflow management: VRP enables faster money movement directly from the customer’s bank account. This allows merchants to benefit from faster settlement and therefore better cashflow. 
Enhanced security: VRP eliminates the need to store sensitive data, such as card information, which is often targeted by hackers. By using VRP, businesses can avoid the risk of data breaches and other security risks. 
Reduced customer churn: Merchants will no longer need to take steps to avoid losing a customer whenever their card on file expires or their card is lost or stolen and must be cancelled. By making it easy to continue payments indefinitely, merchants should be able to reduce customer churn.

How will customers benefit from VRP? 

Better financial management: VRP allows customers to sweep money quickly and securely between their own accounts and arrange recurring payments easily. VRP can also help them avoid overdraft fees and other charges when their balance is low in one account; move surplus funds to savings or investment products to effectively manage personal finances; and seamlessly and instantly split regular bills with friends or family—the possibilities are unlimited. 
Increased security and control: Using the Open Banking framework, customers can set up VRP consent with control parameters that allow third parties to initiate VRP payments from the customer’s bank account. Customers can cancel VRP consent at any time from the third-party or bank interface. As a result, they can enjoy greater security and control over their outgoing payments instead of leaving their card information on file with a payee. 
Reduced human error: VRP helps customers minimise manual input errors when setting up payment instructions. These errors can often happen when customers are creating direct debit mandates or entering card data into a merchant’s system. Resolving input errors sometimes requires assistance from the merchant, which can cause delays for the customer. 
Reduced data management burden: When making recurring payments with VRP, customers will no longer be required to provide debit or credit card information and update it whenever their cards expire or are cancelled for any reason. Customers can simply pay directly from a bank account using VRP and maintain control over their outgoing payments.

What should ecosystem players be doing now? 

As we’ve outlined here, VRP can deliver significant benefits to both merchants and consumers. Some merchants have not yet embraced Open Banking payments because they don’t yet enable recurring payments with variable amounts. These merchants could benefit significantly from adopting VRP in anticipation of the regulators expanding its use to include more functionality and flexibility. Payments ecosystem players should consider these benefits and start preparing now to introduce VRP-enabled payments propositions to stay ahead of the competition.   

To create differentiated VRP propositions, payments ecosystem players can do the following: 

  • Consider commercial VRP opportunities from the start. 
  • Engage with ecosystem players to define risk and liability models for VRP propositions. 
  • Get the pricing right. 

Players in countries where Open Banking is at a less-developed stage may also benefit from watching how things unfold in the UK. This could help them quickly develop a sophisticated Open Banking payments strategy with a full suite of offerings when local regulators make that possible. 

To learn more about payments in Open Banking, contact us

Many thanks to Shauna McLean and Yik Chi Tan for their contributions to this blog post. 

Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. Copyright© 2022 Accenture. All rights reserved. Accenture and its logo are registered trademarks of Accenture.