Thought Leadership

Finally, a new era in payments Sweeps in

The long-awaited requirement from the Competition and Markets Authority (CMA) mandating the UK’s nine largest banks to implement VRPs for Sweeping is going to transform payments and gives consumers and SME’s greater financial control, explains Imran Gulamhuseinwala OBE, Implementation Trustee at the Open Banking Implementation Entity. 

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While sweeping may not be a term that rolls off the tongue of the average consumer or small business, eventually it will become an everyday banking term that we all use regularly. Simply put, sweeping is the automatic transfer of money between a customer’s own accounts, such as moving excess funds into a separate savings account or using them to repay a loan or overdraft account to reduce the cost of borrowing. We like to think of it as the smarter and more consumer-friendly version of direct debit payments or card on file.

It is fair to say that the biggest transformations in the payments space have so far been regulatory-driven (think faster payments), and thanks to an OBIE-led consultation and subsequent recent decision by the CMA, the next big opportunity is for the market to build smarter payment solutions on the foundations laid down by regulation, namely Variable Recurring Payments (VRPs) for Sweeping.  

We’ve been awaiting this mandate since starting work on this in 2017. We are now on standby to implement this by the end of this year. We are especially delighted as this is the last major piece of functionality to be delivered under the Open Banking remedy. 

The CMA has mandated the CMA 9 (who have a combined market share of over 90% of the UK’s consumer and small business bank accounts) to implement VRPS for sweeping, and stated that: “Making effective provision for sweeping is an important element of the open banking remedy and it is important that sweeping provisions include the ability to move funds out of current accounts into accounts earning a higher rate of interest, and conversely enables customers to access alternative and cheaper sources of short-term credit.” 

VRPs are the plumbing to allow the automatic transfer of money between accounts using open banking.  The payments have to be within the permissions set by the customer (frequency of payment, max amount per payment, total maximum amount and end date of the permission).   

This means that VRPs can be used not only to power the development of Sweeping solutions but potentially also as a basis for smarter finance. This would mean no more subscription traps and provide a way for customers to stay in control in a future world of embedded smart payments. Imagine, if you will, washing machines that automatically reorder detergent or electric cars that charge when the price is low.

The Open Banking Implementation Entity (OBIE) has played a key role in helping Sweeping come to fruition and has long campaigned that VRP’s are the best way to deliver them. The OBIE’s mission is to drive competition, innovation and transparency in UK retail banking and under our stewardship position, we are now able to help set the foundation for smarter payments, enhance customer journeys and improve financial wellness for millions of consumers. 

Following the OBIE’s consultation phase on VRP and Sweeping earlier this year, the open banking implementation Trustee wrote to the CMA, sharing the consultation recommendations and formally recommending that the CMA 9 be mandated to implement VRP’s for sweeping.  

In making this ruling, the CMA has agreed with our view that Sweeping should be widely available to the market and that existing payment methods are unsuitable to deliver it effectively. Through the consultation, we found and highlighted that Sweeping unlocks significant value for consumers and SMEs, including: 

  • Reduced overdraft costs: up to 20 million consumers and 1 million SMEs could save up to £300-£600 million each year. 
  • Increase in interest: up to 40 million consumers and 6 million SMEs could benefit up to £600-£1,200 million each year. 
  • Increase in financial resilience: up to 11 million consumers could start a saving habit.  

Sweeping is a public good, and we welcome the CMA’s decision to make it available to consumers. The solution uses a more secure and cost-effective payment alternative, massively improving the digital buying experience through increased convenience, transparency and security.