What is a Variable Recurring Payment (VRP)?
A Variable Recurring Payment, or VRP, is a new, flexible payment method allowing customers to connect authorised payment providers to their bank accounts securely via Open Banking. Through VRPs, customers can manage payments within agreed limits, which gives them more control over recurring payments. This innovative system was introduced by the Competition and Markets Authority (CMA) in the UK, requiring nine major banks, known as the CMA9, to implement a VRP open banking API to make these transactions possible.
Why Are VRPs So Important?
VRPs bring a new level of control and transparency to consumer and business payments, potentially transforming how people and companies handle recurring expenses. Unlike traditional payment methods, such as Direct Debits or saved card details, VRPs offer more visibility and flexibility, making payments safer, easier, and more responsive to changes.
Simplifying Subscription Management
VRPs make managing subscription payments—whether for streaming services, software, or gym memberships—significantly easier. Customers can see all their active recurring payments in one place, including the set limits for each. Unlike card payments, which may not display a full list of subscriptions, or Direct Debits which lack future payment caps, VRPs give complete control and visibility over each subscription.
Customers Control Payment Limits
VRPs operate within specific, customer-defined parameters, allowing them to set limits on the amount and timing of payments. For example, customers might set a maximum amount for daily, weekly, or monthly payments, and they can also set an end date for the permission. With VRPs, payments are flexible and can be adjusted up to the point of transfer, allowing customers to respond to changes in real-time.
Practical Uses of VRPs
Subscription Payments
VRPs are perfect for subscriptions as they’re more reliable and secure than card payments. Unlike cards, bank details don’t expire, and customer authentication is only required once during setup, minimising payment disruptions. VRPs also enable customers to keep track of their spending, receive alerts if prices change, and cancel subscriptions easily via their banking app.
E-Commerce
A smoother checkout experience can reduce cart abandonment, a common issue in online shopping. VRPs offer a quick and secure way to check out without sharing sensitive details. Customers can set spending limits and pay within those limits with a single click, streamlining the process while maintaining control over their finances.
Household Bills
VRPs can simplify household bill payments by allowing customers to set up regular payments that align with their income schedule. This feature is especially useful for those with irregular income or non-monthly pay cycles. With VRPs, customers can avoid missing payments or experiencing financial stress due to poorly timed bills, benefiting both the consumer and the merchant.
Grocery Deliveries
VRPs make it easy for customers to pre-authorise grocery delivery payments within a set limit, so they don’t need to leave card details on file. For merchants, this means no waiting for payment approvals on substitutions or updated totals—payments can adjust smoothly at the point of delivery.
Business Taxes
For businesses, VRPs can be a valuable tool to manage taxes, setting money aside for corporation tax, VAT, or income tax whenever a product is sold or an invoice is paid. This automated setup is especially beneficial for small businesses with cash flow concerns, as it helps ensure tax funds are ready when needed.
Benefits of VRPs for Businesses and Consumers
- For Businesses: VRPs can lower transaction fees, reduce payment errors, and simplify the process compared to card payments and Direct Debits.
- For Consumers: VRPs provide quick, secure payments, reducing the likelihood of errors and the need for manual entries.
VRPs vs. Direct Debits vs. Continuous Payment Authority
|
Feature |
Direct Debit |
Continuous Payment Authority |
VRP |
|
Transparency |
Mandate visibility, the last amount shown |
Transactions appear in the statement only |
Full mandate and parameters visible in the banking app |
|
Control |
Changes need to be requested in advance |
Contact bank or payee for changes |
Can be changed or cancelled instantly via the banking app |
Sweeping: The Key to VRP Benefits
Sweeping is an automated transfer of funds between a customer’s accounts, such as moving extra money from a current account to a savings account or using it to pay off a loan. This function allows customers to maximise their savings or reduce borrowing costs. The CMA mandates that the CMA9 banks provide VRP APIs specifically for sweeping, which allows customers to manage funds more effectively.
VRPs for Non-Sweeping Purposes
Though the CMA mandates VRPs for sweeping, non-sweeping VRPs hold significant potential for managing regular expenses such as:
- Utility payments
- Subscription services
- Tax payments for businesses
- Eliminating indemnity claims commonly associated with Direct Debits
