July 26, 2022

VRP: How Plaid can help you take advantage of a £1.5 billion opportunity

Quan Nguyen & Dan Morgan

Introduced in 2021, Variable Recurring Payments, or VRP for short, are a type of payment instruction that allows people to automate recurring future payments of varying amounts with one authentication. It also empowers consumers and merchants to control those recurring payments. Today, Plaid is launching VRP in beta to make online payments work better for people in the UK. 

For companies like Expensify—a payments super-app that helps individuals and businesses around the world simplify the way they manage money across expenses, corporate cards, and bills—VRP hold the potential to dramatically shift how they do business. With Plaid’s VRP, Expensify can automatically pull varying repayments from their customers’ business accounts to settle card balances. 

When we set out to launch the Expensify Card in the UK, we chose to partner with Plaid because VRP are the best way to securely and quickly move money in the UK," said Sophie Pinto-Raetz, who's leading up the charge to launch the Expensify Card in the UK. "Our aim is to bring the Expensify Card to the UK as quickly as possible, while maintaining the same industry-leading standards as our US version of the card: a direct and seamless integration with the Expensify app, easy options to automate card payment, and transparency throughout the entire expense and preaccounting process. Plaid's cross-Atlantic presence meant that we could unlock the value of instant payments more quickly with one provider. By partnering with Plaid for VRP, we'll be able to introduce the Expensify Card to our UK customers much sooner than it would otherwise be available."

The Competition and Markets Authority (CMA) has mandated VRP for sweeping use cases, where money is automatically moved only between bank accounts held in one person’s name, also known as me-to-me payments. For example, these could be moving excess funds from a low interest current account to a high-interest savings account or topping up a current account with a low balance to avoid hefty overdraft fees. As part of the current mandate, banks must allow open banking companies like Plaid to have free access to APIs for sweeping.

VRP encompasses a wider set of potential use cases than the me-to-me payments set out in the CMA's mandate, such as managing active subscriptions, paying energy and water bills, and more. In a new report, a Plaid data analysis shows that extending VRP to use cases beyond sweeping–and, crucially, protecting their low cost–would save UK businesses over £1.5 billion annually in payment processing fees. Expanding the use cases of VRP would allow open banking companies like Plaid, to initiate payments on behalf of our customers to other accounts like ecommerce businesses and utility companies. 

Furthermore, VRP holds massive potential because of its low cost. If VRP are extended to use cases beyond sweeping, there are no restrictions on how much a bank could charge for these payment types. At Plaid, we believe the fees banks charge for VRP payments must be capped at 10 basis points to protect that low cost and make it a truly competitive alternative payment option. For small businesses, the potential savings are massive, and in the current economic climate, they’re even more critical.  

To further understand the use cases and potential impact of VRP, we’re releasing a new whitepaper that covers how we can ensure consumers and businesses alike gain the benefits.    

“As households and small firms grapple with rising costs, further developments of open banking tools can provide solutions that help improve productivity and reduce costs. Commercial VRPs can offer efficient solutions and have an important role to play for businesses when it comes to reducing transaction costs. In turn, this can also indirectly help lower costs for consumers which could be valuable as the cost-of-living rises,” said Janine Hirt, CEO of Innovate Finance.

It’s early days for VRP—they hold great potential but as a regulation-led product, VRP requires immense collaboration with financial institutions and policymakers. Plaid’s origins in North America means our team has deep expertise managing relationships and work streams with thousands of financial institutions on open banking, such as educating them on the value of setting up APIs. Similarly, our policy team is working hand-in-hand with regulators in the EU to broaden PSD2 to include a VRP equivalent.

If you want to learn more about the potential VRP holds for your business and how Plaid can help, reach out to our team.