Thought Leadership

VRPs set for commercial take-off 

02 March 2023
Thought leadership

By the time 2022 ended, HSBC, Santander, NatWest, Nationwide, Lloyds, and Barclays (six of the CMA9), implemented and were able to offer variable recurring payments (VRPs) for sweeping – where consumers or businesses move money from one of their accounts to another (‘me-to-me’ payments).

This significant open banking milestone was reached by the open banking ecosystem coming together to collaborate on the launch of this innovative new payment technology in a controlled way.

The result meant that Payment Initiation Services Providers (PISPs) – such as banks and fintechs – could offer their customers sweeping propositions with the vast majority of current accounts in the UK.

Two months later where are we?

In January 2023, just one month after all the firms above went live with the technology, we saw a promising doubling of the number of payments made using VRPs for sweeping functionality. While we continue to work with the rest of the CMA9 to implement VRPs for sweeping, we understand that some major PISPs are now poised to launch new sweeping propositions.

Commercial opportunities for PISPs

VRPs for sweeping represent a compelling opportunity for PISPs, which can offer sweeping propositions to their customers. For instance: 

  • Building savings – sweeping customers’ surplus funds into interest-bearing savings accounts and delivering an improved customer experience.  
  • Cost-effective borrowing – sweeping customers’ surplus funds across to help repay more than the minimum amount on credit cards, reducing the cost of borrowing.   
  • Efficient lending – moving money to accounts that ‘unbundle’ overdrafts from a current account, offering a smoother way to manage debt. 
  • Smarter finance for challenger banks – offering customers’ ‘one-click’ top-ups of their alternative current accounts, securing more regular funding. VRPs for sweeping can also be embedded as part of the account opening journey, allowing customers to set up regular funding without leaving their banking app. 
  • Improved cashflow for small businesses – relying on automation rather than manual intervention to sweep money between accounts dynamically and optimise their cashflow, while remaining in control of all parameters. 

Benefits of VRPs for sweeping

As consumers and small businesses face a challenging economic environment and increasingly costly credit, VRPs for sweeping can help in the following ways:

  • For lenders, they can help attract stable deposits and a potentially cheaper source of funding. 
  • For savings account providers, they offer a powerful vehicle to attract balances by enabling you to offer a convenient way to save while keeping the customer in full control of their finances. 
  • For consumers and small businesses, they help make their money work harder by taking advantage of more competitive overdraft and deposit rates, and by optimising their cashflow. 

Looking ahead to non-sweeping use cases

While only VRPs for sweeping are mandated for the CMA9, many eyes are now on VRPs for non-sweeping. This is a game-changing opportunity which will make repeated payments such as monthly utility bills more convenient and efficient, by varying the payment amount and the account intervals in a way that suits the customer. Last year, one major UK retail bank launched VRPs for non-sweeping with third-party payment providers, partnering with an international food charity and lettings management platform.

The use of non-sweeping VRPs by subscription services will also allow customers more control around repeat expenditure. By seeing what they are committing to, and when, they can avoid falling into the ‘subscription trap’ – paying for duplicate subscriptions or subscriptions they no longer use.

Some retail payment uses may require other functionality issues to be addressed before they can become a reality. A number of these have been flagged in the Strategic Working Group report, The Future of Open Banking in the UK. Examples include the repayment of mortgages and consumer loans (e.g., moving excess funds to help repay debt, shrinking larger debt faster), or funding an investment account, foreign exchange account or a digital wallet.

Christian Delesalle, Head of Participant Support, OBIE, said: “We are delighted to see VRP propositions — sweeping and non-sweeping — moving from theory to practical use, and we look forward to seeing other uses of this new way to pay deliver benefits to consumers and businesses alike in 2023 and beyond.”