The expansion of the new Variable Recurring Payments (VRPs) instruction this summer is an exciting development for customers who make and businesses that collect recurring payments.
For years, Direct Debits and cards have been the predominant methods for bill payments and subscriptions, but each has its limitations.
VRPs offer a new approach that lets customers connect authorised payment providers to their bank account and make payments on their behalf within agreed limits.
They are an excellent example of the global shift towards modern, digital payment methods that benefit all parties.
VRPs: the backstory
VRPs have been mandated in the UK since 2022 for “sweeping” use cases where customers move money between their own accounts.
However, in April 2023, the Joint Regulatory Oversight Committee for Open Banking published its recommendations for the next phase of open banking in the UK, which advised expanding VRPs through Open Banking to encourage competition and innovation in retail payments.
The VRP Working Committee was set up in June 2023 and, in December 2023, published a blueprint for the industry rollout of VRPs through Open Banking from Q3 2024.
Consumer benefits
One of the most compelling aspects of VRPs is the empowerment of customers. Unlike direct debit mandates, customers have more control of their VRP set-up.
They can set limits on what can be collected, how often collections can happen and even an end date to the authorisation, ensuring transparency and alignment with their financial planning.
VRPs are also easier to set up; once the digital authorisation is completed, the payment is good to go.
With Direct Debits, there is a lead time to get the process up and running, which may delay the first payment.
As payer-initiated payments, VRPs are also subject to Strong Customer Authentication (SCA) rules, which makes them more secure.
Business benefits
For businesses, the adoption of VRPs translates into substantial cost savings. Companies can enjoy lower transaction fees by circumventing intermediaries typically involved in card payments or wallets.
VRPs are also completed using Faster Payments, ensuring instant settlement and access to funds. Additionally, VRPs integrate seamlessly into banking applications, which are already familiar to consumers, enhancing the user experience and encouraging adoption.
The flexibility of VRPs also allows businesses to initiate variable, real-time payment streams based on actual usage rather than fixed subscriptions. This capability not only aligns with consumer usage patterns but also introduces efficiency and accuracy in billing, reducing the administrative burden associated with payment discrepancies and adjustments.
Future developments
Expanding VRPs to offer an alternative to cards is pivotal for unlocking Open Banking’s full potential. The regulatory impetus, coupled with the global trend towards Open Banking, fosters an environment ripe for innovation, and we can expect to see businesses accelerate their proposition and payment development.
In embracing VRPs, we are stepping into a future where financial operations align with the contemporary needs of businesses and consumers.
