The cost-of-living crisis is having a devastating impact on British households. Steep rises in energy prices and the cost of consumer goods have reduced the purchasing power of most Brits. With inflation expected to peak at 13% toward the end of 2022, consumers are scaling back their budgets and looking for new ways to save.
Subscriptions are likely to be a prime target. At a time when many Brits are tightening their belts, cutting out unwanted subscriptions is an easy way to make their budgets leaner. In fact, a recent survey from YouGov and TrueLayer found that 62% of respondents intend to review their subscriptions in the next six months in the wake of rising costs.
Unfortunately, that’s easier said than done. Opting out of a subscription can be a long and difficult process, one that’s often off-putting for customers. Almost half (45%) of YouGov respondents reported that subscriptions were too difficult to cancel.
One answer may come in the form of variable recurring payments (VRP). Using open banking technology, VRP already facilitates ‘sweeping’ — sending money between two bank accounts owned by the same person. But it could also allow account holders to manage all of their subscription payments in one place.
So what is VRP, and can it help Brits escape the trap of unwanted subscriptions?
The problem with subscriptions
Before we explain VRP in more detail, let’s look at why subscriptions currently pose so many issues.
For starters, it can be difficult for consumers to track all of their plans across multiple accounts. Most subscriptions involve one of two types of recurring payments:
Direct debits: merchants collect payments of variable amounts from their customers on a regular basis
Card on file: merchants initiate a regular payment using their customer’ payment card details that are stored on file
Card-on-file payments make up the majority of these transactions. But since they don’t show up on customers’ online banking like direct debits, it can be difficult for customers to keep tabs on them. A quarter of YouGov’s respondents don’t know how much they’re currently spending on their little-used subscriptions.
Cancelling a subscription presents even more issues. Customers must deal directly with merchants, and the process can often be convoluted and unintuitive. In fact, it’s so confusing that many customers simply don’t bother. Two in five (38%) respondents told YouGov that they’d accidentally or intentionally paid for subscriptions they don’t use.
This isn’t just a problem for consumers, either. Merchants degrade their customer experience when they make it difficult to end a subscription, costing them future business. YouGov’s survey found that more than half (51%) of respondents would be more willing to sign up for subscription services if they were easier to cancel.
What is VRP and how can it help?
VRP is open banking’s version of a recurring payment. It allows regulated companies known as third party providers (TPPs) to initiate regular payments of different amounts at different times. Customers set the initial parameters of the VRP, and then it carries on in the background.
Under the current mandate from the Competition and Markets Authority (CMA), the UK’s nine biggest banks must offer VRP as a way for customers to transfer funds between their own accounts. But through partnerships like NatWest’s collaboration with TrueLayer, some banks are voluntarily extending the scope of VRP beyond sweeping to include payments to businesses, such as subscription payments.
This could offer several advantages compared to card-on-file payments and direct debits. Businesses can benefit from VRP’s lower transaction costs, and VRP doesn’t require re-authentication, which results in reduced churn.
Consumers may also gain from what VRP has to offer. Open banking’s aggregation capabilities could be used to compile customers’ financial data across their accounts, potentially allowing them to track and manage their subscriptions with greater transparency.
In some circumstances, VRP could even allow customers to cancel their subscriptions through their bank apps in one click. While this use of VRP is in its infancy, it has the potential to make subscription payments faster and easier.
As the cost-of-living crisis intensifies, it’ll be more important than ever to cut out unwanted expenses. Subscription payments need to be more manageable and transparent. VRP could play a role in making that happen.
Read our introduction to VRP to learn more about the future of subscriptions.