Last year, the Competition and Markets Authority (CMA) made waves when it required the UK’s nine biggest banks to build APIs to enable variable recurring payments (VRP). The goal was to facilitate ‘sweeping’, a process by which customers could move funds between their own accounts. 

But questions soon arose around the CMA’s definition of sweeping. For the past few months, open banking firms have been eagerly awaiting a verdict on which types of transactions will be supported, from funding cryptocurrency accounts to paying bills.

The wait is now over. On 14 March, the CMA clarified its definition of sweeping. So what does that mean? And how will it affect companies wanting to use VRP? 

What are variable recurring payments? 

First, let’s cover the basics. What are VRPs, and how do they facilitate sweeping?

Variable recurring payments are exactly what the name suggests. They allow businesses to make payments of differing amounts from consumers’ bank accounts on a recurring basis. Think of it like Direct Debit, only faster and more flexible, with open banking data powering the process.

For example, with VRP, a consumer could allow a business to access their transaction data on an ongoing basis. They could then set-up a payment schedule, with agreed parameters that say, “Sweep £10 per week from my current account, to my savings account, but never let my current account fall below £500”. The provider would know when a customer has less than £500 in a given week and would not sweep funds to a savings account in that week. 

Like Direct Debits, the payments are made in the background, without the consumer having to take action. Unlike Direct Debits, there is the extra security that a consumer must strongly authenticate the initial VRP mandate with their bank to prevent fraud. 

VRPs will also help consumers manage their money more efficiently and effectively, earning interest and avoiding unnecessary costs of borrowing. 

Currently, the nine biggest UK banks are only required to allow access to their VRP APIs to facilitate sweeping use cases. Also known as “me-to-me payments,” sweeping is the automatic transfer of money between two accounts owned by the same person. Examples include: 

• automatically moving extra money into a savings account (as per the example above)

• moving extra money into another account to avoid going into an overdraft in that account 

But this definition has raised some questions. For example, if sweeping constituted a payment between two accounts owned by the same person, would ecommerce purchases qualify? What about topping up an online gaming account, or paying a bill? Would banks need to support these use cases?

What was the CMA’s decision?

The CMA’s 14 March statement sought to answer these questions. It outlined the conditions under which TPPs could use the new VRP APIs to move money for consumers. 

So what officially falls under the CMA’s definition of sweeping? At the moment, VRPs can do the following…

• Sweeping between current account providers

• Sweeping to credit accounts

• Sweeping to cash savings accounts

Sweeping between current account providers

In the statement, the CMA clearly allows for “sweeping between current account providers, including to move funds between current accounts to avoid falling into overdraft on another current account.” 

In order to check whether an e-money account fits the description of a current account, it is useful to look at the Retail Banking Markets Investigation (RBMI) terms of reference. They define a personal current account as providing a number of common features, including the ability to hold deposits, to make and receive payments by cheque or debit card, and to make recurring payments by direct debit or standing order.

Business current accounts also fall within this scope. The RBMI terms of reference define these accounts as services that include “the provision of business current accounts, overdrafts, general purpose business loans, and deposit accounts”

Beyond personal and business current accounts provided by banks, the CMA has also clarified that “e-money accounts that are used by consumers and SMEs as substitutes for current accounts” are also in scope. 

In practice, this means that consumers can use third parties to sweep funds into both current accounts provided by banks, and those provided by e-money institutions. Some well known e-money current account providers include Revolut, Wise, Anna Money, Tide and Sumup.

TLDR: if your proposition involves current accounts and you want to involve sweeping, reach out to us.

Sweeping to credit accounts 

The CMA’s statement also lists three examples of where sweeping can be used to pay off credit. They include:

1. Unbundling overdrafts: this refers to companies (eg Tappily) that offer a line of credit or loan to consumers that can be used to supplement their current account balance and prevent them from going into a more expensive overdraft. A VRP would then be used to sweep funds back from the current account (when there are sufficient funds) to the credit account to pay off the loan. 

2. Loan repayments: the CMA notes that sweeping to reduce borrowings is a valid use of sweeping, excluding only secured loans and mortgages. This confirms that unsecured loans are in scope of sweeping. For example, using a VRP to sweep funds from a current account to pay off loans, student debt, or store credit purchase repayments. 

3. Credit card repayments: the CMA supports the use of sweeping to credit card accounts, including those provided by retail banks (eg BarclayCard) or non-bank credit card issuers (eg American Express). So consumers will be able to set up VRP arrangements to pay off their credit cards from current account funds under pre-arranged parameters. 

TLDR: if your proposition involves credit accounts, credit cards or unsecured loans, sweeping will provide an effective new payment method. Reach out to us.

Sweeping to cash savings accounts

Finally, the CMA notes that “sweeping to cash savings accounts that are capable of paying interest” are within scope of sweeping. 

TrueLayer already works with a number of companies (such as Chip and Plum) that use existing payment methods combined with account data to help consumers save cash automatically and earn interest. Confirmation that these use cases are in scope of sweeping will now allow them to use VRP.

TLDR: If your proposition includes a savings account that is capable of paying interest, you can sweep to it. Reach out to us.

What’s next?

The nine largest UK banks are underway with a managed rollout of VRPs with approved third party providers. TrueLayer is working with banks on that rollout so that we can go live with sweeping as soon as soon as possible. 

TrueLayer is also working with banks and regulators on the next phase of VRP: to unlock use cases beyond those outlined above. 

We’re excited to push VRP forward, so it shouldn’t come as a surprise when we say don’t hesitate to get in touch if you’re interested in talking about VRP.