Taking into account the current progress, Variable Recurring Payments will be fully implemented by banks no earlier than the end of 2022, which means that the first serious use by the business will emerge at the beginning of 2023. It might take another year or two for VRPs to be widely used by the market players, which means we might see mass adoption of such payment types around 2024 in the UK and hopefully in 2025 across the EU and the rest of the jurisdictions that are adopting open banking as we speak.
Open banking payments are already shifting the way consumers and businesses pay and get paid. And the numbers are starting to finally back up the open banking hype with over 3 million successful payments within the UK, in November 2021 alone (compared to 4 million in the entire 2020).
While open banking has been leading major disruptions in digital banking, its first big-time innovation may have just occurred. I’m talking about Variable Recurring Payments (VRPs) – a new lower-cost way of making payments using bank APIs, happening in real-time, and it comes as a more secure alternative to Direct Debits and card-on-file for recurring payments.
Direct Debits are one of the most common ways to pay for subscriptions – from your bills to gym subscription or your video streaming provider. For a customer, this is an easy way to organise their own finances, while from a merchant’s point of view, it brings clarity and stability in their own cash flow management.
However, using Direct Debit comes with some downsides for merchants and users as well:
VRPs is a real game-changer, as it allows long-lived consent to licensed third parties to initiate payments on the customer’s behalf with a specific instruction set. Moreover, moving funds from one account to another happens instantly, with no human intervention.
VRPs are offering a much more flexible way of subscribing to a service directly from your bank account via an instant payment. It is easier to set up both by the merchant and by the end-customer. Once set-up, VRPs can be used for any kind of services, like:
VRPs is still “a dream to come true” for Third-Party Providers. At the moment only sweeping API (moving funds between two accounts owned by the same person) is regulatory required to be built by the CMA9 banks in the UK by July 2022.
The actual VRP and the operational model are still being discussed by the industry, as there are some concerns around the implementation and liability/dispute management system that have to be figured out. VRPs are going to be commercial APIs, based on bilateral or multilateral agreements between banks and third parties willing to use such a service. The entire framework is still a work in progress to this date. And again – at the moment, it is discussed only in the UK. It might take some time to get it massively adopted in other regions.
Taking into account the current progress, I believe that VRPs will be fully implemented by banks no earlier than the end of 2022, which means that the first serious use by the business will emerge at the beginning of 2023. It might take another year or two for VRPs to be widely used by the market players, which means we might see mass adoption of such payment types around 2024 in the UK and hopefully in 2025 across the EU and the rest of the jurisdictions that are adopting open banking as we speak.
There is a long way ahead of us, but with so many industry players involved in the process and such clear benefits of VRPs, I’m sure we’ll soon start using variable recurring payments as our primary payment method in our daily lives. And taking into account all its benefits, let’s roll our sleeves and get to work!
Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
Many more interesting quotes in the video below: