variable recurring payments

Variable Recurring Payments (VRPs) are a pioneering payment instruction that lets customers safely connect authorised payments providers to their bank account to make payments on their behalf in line with agreed limits.

The Competition and Markets Authority (CMA) mandated nine UK banks (the CMA9) to implement a VRP open banking API to enable easier sweeping of funds from a customer’s current account to another of their accounts.

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Why are VRPs so important?

This new way to pay could herald a new era in consumer and business banking.  VRPs offer more control and transparency than existing payment alternatives, such as Direct Debits and card-on-file instructions.

In contrast, VRPs offer ongoing permission to take payments, within agreed rules, enabling a more seamless and secure way to pay for goods and services.

Managing subscriptions

For example, consider subscription payments for entertainment services, software, gyms etc. VRPs will let customers see which institutions they have agreed to make recurring payments to and the limits of each payment permission.

In contrast, banks can’t provide a list of all the subscriptions paid for by card, and while they can show a list of subscriptions paid by Direct Debit, there is no cap on what future payments might be.

Customers control payment limits

VRPs operate within customer-defined parameters where the amount to be taken over a given time period (e.g. per day, per week, per month or per year) and the end date of the permission is agreed upfront.

VRPs are quick to set up, and the exact value of the payment can be changed dynamically (within the payment parameters), right up to the point of irrevocable payment, so customers can respond to changes in real time.

Benefits for businesses…

VRPs may offer lower transaction costs than card payments and Direct Debits.

They give customers greater clarity and control, helping to reduce errors.

Benefits for consumers…

Faster, frictionless and secure payments to third parties.

Reduced risk of payment errors, with less manual form-filling.

Recurring payments at a glance

Compare the clarity and control of different payment methods such as Direct Debit, Continuous Payment Authority, and VRPs. Click the link below to see an expanded version of the table.

View table

Sweeping

Sweeping plays a key part in delivering the benefits of this new payment technology.

Sweeping is the automatic transfer of money between a customer’s own accounts (me-to-me payments), such as moving surplus funds into a separate savings account or using them to repay a loan or overdraft to cut the cost of borrowing.  

The CMA mandated that the CMA9 must offer open access to the VRP API for sweeping and, in March 2022, offered further clarification on the definition of sweeping to enable the CMA9 to deliver this option later this year.

Smarter saving

The ability to automatically move surplus funds out of current accounts into savings accounts earning a higher rate of interest will help boost savings, build a regular savings habit and increase financial resilience.

Customers can feel confident that their money is working harder, and when they move money via sweeping, they can see the transfer immediately. There’s no more waiting.

Cheaper short-term credit

By enabling customers to access alternative sources of short-term credit and make repayments as soon as funds are available, sweeping can help cut the cost of borrowing.

Current account competition

Sweeping makes it easier for customers to have more than one current account as funds can be swept easily between providers, helping them to get better value from their providers.

VRPs for non sweeping

Non-sweeping VRPs have not been mandated by the CMA, so the CMA9 are not obliged to provide these payment services. However, there are clearly opportunities for non-sweeping VRPs which could help businesses and consumers to:  

  • Manage regular bills such as utilities payments.
  • Manage subscription services.
  • Help businesses to pay their tax, by putting tax aside and VAT at the point of invoice collection.
  • Remove the headache of indemnity claims associated with Direct Debit.