Did you know that Direct debits have been around for over sixty years? They are a relic of the legacy banking infrastructure that is now being challenged by open banking and, in particular, Variable Recurring Payments (VRP).

Financial institutions are adopting VRP to help them solve many of their biggest and costly problems. Transaction fees are reduced and funds are settled immediately. The risk of fraud is reduced and chargebacks are eliminated. From the end user’s point of view, VRPs offer enhanced financial control and improved customer experience.

Types of VRP explained

There are two types of VRP. The first type launched and still growing in popularity is known as VRP ‘sweeping’. There is also the ‘non-sweeping’ variety which may also be referred to as Commercial VRPs. It is important to understand the difference between the two.

The here and now - and what’s next for VRPs

Today sweeping VRPs are being used to enable consumers to move funds between accounts they own. They are sometimes referred to as ‘me to me’ payments. You cannot actually buy anything with VRP sweeping.

In the near future, Yapily will also be rolling out non-sweeping VRPs. These will be an alternative to the ageing direct debit service and so are a game-changer that enables consumers to make purchases.

We will explain and explore both types of VRP below.

What’s so good about sweeping VRPs?

The introduction of sweeping VRPs are used by financial service companies to gave their customers the opportunity to make more of their money and improve their financial wellbeing by implementing that enable:

• Intelligent savings: Using parameters defined by the customer, surplus funds in a current account can be identified and swept into a savings account to achieve higher rates of interest. The customer can cancel the mandate at any time.
• Smart overdrafts: Reduce fees and charges by automatically paying off an outstanding overdraft in one account from another account with a positive balance.
• Current account switching: consumers can improve their financial wellbeing and encourage account movement of funds to higher interest bearing current accounts.

The big leap forward - non-sweeping VRPs

So even as sweeping VRPs are still gaining traction, Yapily is already working with clients on the non-sweeping variety which are a game-changer for open banking service providers. They enable customers to spend their money, not just move it from one of their accounts to another one they own.

Direct Debits - but so much better

Think of non-sweeping VRP as the open banking (more modern and convenient) replacement for old payment methods such as direct debits, standing orders or card continuous payment authority (CPA). It’s often difficult or impossible for customers to view a list of all their subscriptions paid by card. And while banks may be able to show a list of subscriptions paid by direct debit, there are usually no limits on what payments might be taken in the future.

Non-sweeping VRP are a game-changer for e-commerce businesses that are almost completely reliant on card payments. Your customers will love how easy VRPs are to set up and manage. They can set up payment parameters in-app, amend amounts and dates with all details being transferred seamlessly from app to app.

They only need to provide consent once and they can change details such as frequency and amount of the payment any time.

Just a few of the many breakthrough use cases that non-sweeping VRPs can enable for businesses and their customers include:

• Subscriptions and repeat purchases: VRPs are cheaper for you and easier to set up for your customers to pay for household bills, streaming services, gym memberships and other repeat purchases without the hassle of setting up direct debits.
• Flexible amounts for usage based billing - Not all regular purchases are for the same value. The cost of utilities or a monthly grocery delivery may fluctuate depending on product availability and possible substitutions. By offering non-sweeping VRPs, your customers can set parameters enabling authorisation of varying payments to allow for such circumstances.
• Sustainable charity donations: Charities lose out on income when people cancel fixed donations due to what may be a short-term reduction in disposable income. Variable recurring payments would offer customers the ability to make donations only when their account balance exceeds a certain threshold. This gives greater control and transparency to the consumer and encourages long-term income for the charities.

Get ahead with VRP

In many ways, VRPs are a great example of what open banking is all about. With legacy technology and processes still holding back many financial service providers and corporates, VRPs are a striking comparison of what is now available to open banking users.

The simplicity of set-up, their flexibility and lower costs will ensure that VRPs will quickly become part of everyday life. Organisations relying on legacy processes will stand out for all the wrong reasons, creating friction in the buying process and making themselves less appealing to do business with.

Yapily is looking forward to sharing news of how its clients are making their payments cheaper while delivering an enhanced customer experience in the coming months.