A guide to Variable Recurring Payments in open banking

Written by Rebecca Danks · August 11th, 2021

What are Variable Recurring Payments (VRP)?

Variable Recurring Payments (VRP) are a huge milestone for open banking. This allows variable payment amounts to be collected on an ongoing basis and, when fully mandated, will act as a smarter, flexible version to direct debits.

VRP allows authorised payment initiation service providers (PISPs) to make payments on the customer’s behalf, offering all the security benefits of an open banking single payment. They can vary in frequency and value and, most importantly, remove the friction from recurring Strong Customer Authentication (SCA).

Building a better savings habit using sweeping

VRP is an enabler for sweeping, allowing consumers to build and better manage their personal finances.

Money can be automatically transferred between a customer's own accounts, such as moving excess funds into an account where it can generate interest. Alternatively, transferring money to repay an overdraft or loan account.

Sweeping is the first mandated use case for VRP. The CMA9 banks have until January 2022 to implement sweeping, and Yapily will continue to work with customers, regulators, and industry bodies to pioneer this feature when it becomes available.

How do Variable Recurring Payments differ from Direct Debit payments?

Variable Recurring Payments are ‘push’ payments, initiated by the payer (the customer) and sent via a direct bank transfer to another account. Direct Debits are ‘pull’ payments, initiated by the payee (a business) to the payer and require a contractual agreement between the two parties.

As a result, setting up Direct Debits can be a time consuming and costly process for businesses.

How secure are Variable Recurring Payments?

VRP are ‘push’ payments and therefore subject to the same risks as push-payments fraud. However, safety and security is a top priority for the CMA, OBIE, and the open banking ecosystem.

All open banking participants are required to design and implement appropriate mitigations for any risks as well as a clearly defined complaints process for customers. This therefore ensures customers benefit from the same protections when using sweeping services as they would for other payment methods, such as direct debits.

How can Variable Recurring Payments be improved?

Although VRP for sweeping is a huge leap forward for both the industry and consumers, the current mandate is limiting. By enabling transfer of money between accounts held by the same person, we are missing out on an entire market - business.

We actively consult with customers, prospective clients, and the wider ecosystem about the payment functionality made available with open banking. From our findings, there are perfect use cases that could be tied to a fully-fledged VRP solution but there are improvements to be made:

Subscription based payments

We have seen customers attempt to use domestic standing orders to collect payments which are limited to the time spent on payment creation and authorisation.

Refunds

Similar to reverse payments, there is no way to initiate a refund without the PISP consenting to the reversed payment in each refund case. VRP would allow this to happen if the PISP creates a VRP refund consent which they can use to pay their customers in the event of a refund. This also works nicely with subscriptions as PISPs could send an authorisation of £0.01 and return any subscription-based service using the refund consent.

Bulk payments

VRP could make a complementary solution to bulk payments. Currently, bulk payments are mainly restricted to some corporate accounts but VRP could provide payment opportunities for customers to issue multiple payments to different payees from personal accounts.

The introduction of VRP is a critical enabler for open banking payments, but there is still work to be done.

At Yapily, we will continue to work with our customers, regulators and industry bodies to shed light on developing use cases and best practices when implementing this new and exciting payments feature.

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