Looking back on 2022, it’s clear that this year saw a major turning point for variable recurring payments (VRPs).
After months of anticipation, the Competition and Markets Authority (CMA) clarified its mandate around sweeping, or the movement of money between accounts owned by the same person. Under the updated definition, the UK’s nine biggest banks still had to introduce application programming interfaces (APIs) that would let customers sweep funds between their own accounts — but for a much narrower range of use cases.
Since then, banks have partnered with third party providers to roll out VRP products that meet these requirements. But banks like NatWest have gone even further, allowing customers to pay for utility bills, subscriptions and more with VRPs.
As the technology matures, more companies are putting it to use for both sweeping and non-sweeping purposes. Leading fintechs and challenger banks are harnessing the power of VRPs for everything from loan repayments to automatic savings and more.
To see how companies are making the most of VRPs, we spoke to Nicole Bianchi, Product Manager at Chip; Justin Sebok, Head of Product at Curve; and Joost Versteeg, Global Director of Payments and Compliance at iwoca. Watch the video below to see why they're excited about VRPs.
As 2023 approaches, VRPs have the potential to bring fast, transparent and secure recurring payments to even more businesses and consumers. So what do providers and early adopters need to do to make that happen? Here are a few of the key insights that emerged from our discussion with Nicola, Justin and Joost.
1. Going past sweeping will drive user adoption
The divide between sweeping and non-sweeping payments continues to define VRP. Currently, CMA9 banks only have to provide VRPs for sweeping funds between current, credit, and cash savings accounts. Everything else falls into the non-sweeping category, and is strictly voluntary for banks.
This can be off-putting for consumers who may not understand the difference between the two categories. For example, it’s confusing when companies can offer VRPs for unsecured lending, but not secured lending. That uncertainty will also make it much harder for customers to build trust in VRPs.
VRP has the potential to be transformative for both customers and businesses. The former will benefit from lower costs, while the latter will experience less friction compared to card-on-file and direct debit payments. In order to achieve those advantages, providers and banks need to find a way to enable commercial VRP outside of sweeping. This will be key to driving adoption going forward.
2. More incentives are needed for banks
Many of the lessons learned from the UK’s rollout of open banking also apply to VRPs.
Open banking was proposed as part of PSD2 in 2015 and introduced through Payments Services Regulations (PSRs) two years later. It helped regulators bring competition into a heavily concentrated banking market. Using account data from traditional institutions, open banking allowed new businesses to build more effective financial products, spurring innovation in the space.
While CMA9 banks are now required to provide sweeping VRPs to customers, they have little motivation to promote them or feature them prominently. The UK’s financial ecosystem is also much bigger than it was in 2017. Consumers and businesses don’t just rely on traditional banks, but also on a host of challengers and fintechs, all of which aren’t obligated to offer VRPs for sweeping.
Those companies will all have roles to play in driving adoption. With that in mind, regulators, providers and early adopters should incentivise CMA9 banks to feature sweeping VRPs more prominently and encourage other players to come aboard voluntarily.
3. Providers should emphasise VRPs' familiarity
Sometimes there’s no such thing as a first-mover advantage. Case in point: payments. Businesses can be skittish to deploy a new method when there aren’t prominent success stories available, while customers are used to existing payments and know how they work.
One way that providers can overcome this is to emphasise VRPs’ familiarity instead of hyping them up as revolutionary. “Even though the technology is new, the concept isn’t,” said Nicole Bianchi, Product Manager at Chip. “Every customer will recognise what’s happening. It’s a payment that’s regularly taken, that you’ve set up, consented to, and want to happen.”
Positioning VRPs as an improvement on existing payment methods can remove the potential fear factor around it. That will make customers more receptive to their benefits, such as faster settlement speeds and better user experience compared to card-on-file and direct debit.
By emphasising the quality of VRPs and how they build on products customers regularly use, providers can make them accessible to customers who might otherwise be sceptical.
Visit our VRP page to learn how to harness fast, intuitive and secure recurring payments.