Discover the power of Variable Recurring Payments (VRP). In this article, we demystify VRP and explore its potential to revolutionise the world of payments.
You may have noticed ‘VRP’ are the hottest three letters in the world of open banking and payments. In this article, we’ll demystify VRP and explore how it’s set to change the world of payments and ecommerce.
What are Variable Recurring Payments?
VRPs are a new type of transaction facilitated by open banking APIs in the UK.
Unlike a single immediate payment, VRPs allow consumers to authorise third party providers (TPPs) like Token.io to initiate a series of payments from their bank account, under rules and limits defined by the consumers themselves.
In other words, previously open banking enabled consumers can make “single immediate payments” directly from their bank account:
one payment
one merchant
one time
With VRP capabilities, consumers can now also make payments that are:
multiple payments
one merchant
multiple (future) times
varying payment amounts
This model supports a frictionless user experience because it requires only one Strong Customer Authentication (SCA) step during the VRP setup.
VRPs for sweeping services
The applications of VRPs fall into two main categories: sweeping services and non-sweeping (also called commercial) services.
Sweeping services, or “me-to-me” payments, enable the transfer of funds between two UK sterling current accounts (or alternatives, as defined by the OBIE) owned by the same consumer or business.
Sweeping services are facilitated by VRPs, and can be instrumental in maximising interest on savings or minimising overdraft fees. The UK’s nine largest banks (the CMA9) are mandated to support sweeping using open banking APIs by the UK’s Competition and Markets Authority (CMA). As a frontrunner in the space, Token.io offers VRPs for sweeping services with all major UK banks.
VRPs for non-sweeping (commercial) services
Non-sweeping or commercial VRP services involve recurring transfers of money between two accounts under different names (“me-to-them”), under rules and limits that the consumer controls.
In this case, consumers provide long-lived consent to a TPP like Token.io to initiate recurring payments from their bank account, requiring only one SCA step during VRP setup.
Commercial VRPs are a more secure, convenient, and cost-effective alternative to direct debit and card-on-file transactions for recurring payments such as subscriptions or bills, and also offer significant advantages when it comes to one-click e-commerce purchases, as we explore in this article.
The potential for VRPs to reduce churn and replace card-on-file with 'account-on-file' for e-commerce payments makes them a game-changer for modern commerce. Token.io is set to offer VRPs for non-sweeping services with NatWest, with more partnerships to follow.
Compelling use cases for VRPs
The potential applications for VRPs for sweeping services include:
Automating savings and debt repayments
Minimising overdrafts
More effective budgeting
Maximising interest on savings
The potential applications for commercial VRPs are extensive, with some of the most compelling use cases being:
One-click e-commerce payments
Wallet top-ups
Utility bill payments
Subscription service payments
Charitable donations
For more use cases for commercial VRPs, check out:
A deep dive on the benefits of Variable Recurring Payments.
The future of VRPs and open banking
The introduction of VRPs for sweeping services marked a milestone in the progression of open banking in the UK, and the advent of VRPs for non-sweeping services is set to mark a revolution in frictionless payments for both consumers and merchants.
While VRPs offer many benefits such as improved user experience, instant settlement, and potentially lower costs for merchants, a more standardised framework is required to ensure widespread adoption. This standardisation could cover the scope and duration of payer consent, dispute management and liability, and the adherence to open banking standards relating to VRPs.
In conclusion, Variable Recurring Payments represent a ground-breaking innovation with immense potential to benefit consumers and businesses. The journey towards the future of payments will require industry collaboration, as evident in the partnership between Token.io and major UK banks. But the market is already clear: non-sweeping VRPs are an excellent starting point for the next phase of open banking’s progression in the UK.