VRP for utilities: what opportunities are coming?

Utilities providers want their customers to pay the monthly bills that keep their home and life ticking along.

What they don't want is the current challenges that come from these payments being made by card or other traditional payment methods.

For example, there are lots of manual and complex reconciliation when customers miss payments or are incorrectly billed. This increases operational costs and reduces revenue. Long settlement times —on both card payments and direct debit — lead to potential cash flow problems. And this is without mentioning the issue of failed payments.

Added to this, the customer experience suffers, especially if the customer has an irregular income and they aren’t able to pay bills in full. Which often results in high customer churn rates.

But this is a well-known challenge. What's new?

Previously out of scope, Variable Recurring Payments (VRP or Bank on file) are soon going to be available for the utilities industry (as well as regulated financial services)

In this article, we’ll explain how utilities providers can take advantage of VRP by outlining the upcoming changes and exploring the use cases in scope.

As a reminder, what is VRP?

VRP stands for Variable Recurring Payments, a payment method offering consumers the ability to set up repeat payments of varying amounts and benefit from a one-click payment experience. If that sounds familiar, it’s because VRP, otherwise known as Bank on file, combines the benefits of card-on-file, direct debit and standing orders, but without the lengthy set-up or set backs of older payment methods.

VRP represents the next stage in Pay by Bank, offering speed, flexibility, security, and efficiency.

So, what are the changes, why are they important, and what does it mean for the utilities industry?

Changes that will transform payments in the utilities industry

In short, to-date variable recurring payments have been limited to me-to-me payments. An example of this is moving money from your current account to your savings account, also known as sweeping.

However this is changing. Expanding VRP beyond sweeping was confirmed in a second FCA announcement last month. Jack Wilson, TrueLayer’s VP Policy & Research, set out the timelines in his recent post.

This change will see consumers being able to make recurring payments to utilities providers for a variety of new use cases, offering them a more seamless, frictionless and secure payment experience.

How does this translate to the real world? Take a look at the examples below.

Use cases: what exactly is in scope?

Breaking down the guidance, VRP is going to be available for payment transactions from a UK payment account to a UK account of the utility company for:

• Electricity providers

• Gas providers

• Water providers

• Telecoms providers

Why is this going to be so valuable?

1. Billing flexibility. VRP payments are taken within an authorised mandate which is not necessarily in a set cadence or schedule. This gives customers the option to pay-as-they-use, which reduces the chance of overpayment, and the need for providers to process refunds which come with high operational costs.

2. Servicing ad hoc utility costs. Think an agent call out fee or temporary usage spike. VRP mandates can be set to include one off payments which gives customers more visibility and confidence over their payments by splitting these costs from monthly bills.

3. One click checkouts, offering a frictionless and instant one off payment experience for customers paying their bills, unlike a direct debit payment which takes much longer.

4. Increased success rate of collections, plus lower defaults and bad debt with confirmation of funds and smart retries.

5. Automated reconciliation will be considerably easier with digital payment references.

Stay up to date with all the developments

If one of the use cases mentioned above is a match, you have a real opportunity to be the first to market in your industry with VRP and it’s clear that it is gaining momentum. Adoption is accelerating and the numbers prove it. VRP already accounts for 3.3 million payments in the UK each month, with impressive month-on-month growth.

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If you’re ready to jump onboard the VRP hype, reach out to speak to one of our payment experts today.