October 18, 2021
VRPs: the next frontier of open banking payments
Variable Recurring Payments (VRPs) are the next big development for open banking in the UK. Last year, the UK’s Open Banking Implementation Entity (OBIE) released its consultations on VRPs, bringing the technology one step closer to reality. The Competition and Markets Authority has since mandated the technology, requiring the CMA9 to implement VRP as the mechanism for sweeping by the end of January 2022. There is an open proposal to extend the rollout timeline to July 2022, so we expect limited availability at the beginning of next year.
VRPs and sweeping unlock countless opportunities for consumers to better manage their financial lives, while encouraging companies to build the mechanisms that enable open banking adoption and growth.
VRPs resemble recurring payments such as direct debits in that they allow Payment Initiation Service Providers (PISPs) like Plaid to initiate payments on behalf of consumers. What’s different about VRPs is they enable consumers to approve transactions that vary month-to-month. VRPs help in situations where consumers frequently make payments of different amounts, such as a monthly electric bill.
But VRPs do far more than simplify bill payments. The technology can be applied across a spectrum of use cases to give consumers greater control of their finances. Let’s dive into five interesting use cases for VRPs.
Five use cases for VRPs
Smart savings and overdraft schemes
VRPs can be used to manage personal finances through sweeping, where money automatically moves between two accounts held by the same person. Examples of sweeping include automatically moving funds to a different account to avoid overdraft fees or to take advantage of better interest rates. Sweeping can also be used to automatically trigger loan payments when account balances exceed a certain amount, or to save for that next big trip.
Control over subscriptions
The only thing worse than realising you’ve been paying for a subscription you don’t use, is trying to get that amount refunded. With VRPs, consumers can define consent parameters such as maximum transaction amount per day or time limit on consent to avoid the dreaded “set it and forget it” scenario. Ultimately, consumers are in control since they can revoke consent via providers like Plaid, at their bank, or directly with the merchant.
1-click ordering on Amazon revolutionised online payments. VRPs bring that same convenience to other apps you trust. For example, you could set up a VRP with Uber to automatically charge you whenever you arrive at your destination, up to a certain amount, rather than needing to enter your bank details each time. You could also set up in-app authentication of payments on social networks, making it easy to pay friends on Facebook or WhatsApp, for example.
For legacy financial institutions, customer onboarding can be a high-friction process that takes days for funds to hit new accounts. VRPs is powered by Open Banking payments on top of Faster Payments rails, and can speed up and simplify customer onboarding by allowing consumers to fund their new accounts immediately rather than waiting days or weeks for funds to arrive. By removing friction at signup, banks and fintech apps can improve the customer experience while reducing fraud and increasing funding amounts, among other benefits.
Even for next-gen utilities, utility payment UX typically isn’t great—leaving customers frustrated and bills unpaid. With VRPs, consumers can authorise utility providers to automatically take payments from their bank accounts, up to a certain amount. This satisfies consumers while boosting collection rates.
The future of open banking
VRPs represent a major leap in open banking. Not every use case for VRPs will be government mandated. However, we believe consumer demand for such services will eventually create a market for them, spurring fintech and legacy financial institutions to adopt the infrastructure to support VRPs.
To support this burgeoning market Plaid is developing a VRP product that will fuel open banking adoption and give consumers even more control over their finances. Contact our sales team to learn more.