Voice of the Industry

Will 2024 be the year that variable recurring payments take off?

Thursday 15 February 2024 10:41 CET | Editor: Alin Popa | Voice of the industry

Commercial adoption of VRPs and DRPs faces framework challenges, requiring industry collaboration. Kieran Hines from Celent emphasizes technology's role in banking.


A year ago, the immediate future for Variable Recurring Payments (VRPs) looked bright. The implementation deadline for sweeping transactions in the UK had passed, and there had been several announcements of successful pilots and commercial agreements being struck with NatWest for non-sweeping VRPs. Speaking to people in the industry on the subject, it was clear that many expected other banks to follow swiftly in reaching their own commercial agreements with payment initiation service providers (PISPs).

In parallel, there was also clear momentum behind this concept at the European level. A model for Dynamic Recurring Payments (DRP) was front and centre in the SEPA Payment Accounts Access (SPAA) initiative. DRP and VRP are similar propositions, in allowing customers to give ongoing consent for a payee to initiate transactions from their account (within certain parameters), with a revenue flow back to the account holding institution. In other words, both DRP and non-sweeping VRP represented a clear potential revenue opportunity for participating banks. 

Such was the opportunity in this area, we at Celent published a report in late 2022 that outlined the broad business rationale for banks to invest in this area. The conclusions in here still hold, including our view that VRP and DRP should be seen as a clear opportunity to kickstart the broader commercialisation of Open Banking. After all, those banks that enter into commercial agreements for VRP would build the organisational know-how and muscle memory needed to explore the far wider range of other Open Banking monetisation opportunities. The necessary skills here include the methodologies for creating pricing and liability models, as well as managing the expectations of third-party stakeholders.

There are several areas in the payments landscape in which commercial VRP can bring value to both payers and payees. The most attractive areas for banks to explore in the short term were those characterised as being relatively low risk, easy to penetrate, and with clear economic benefits for the business accepting the payment. The two that top the pile are account funding (for use cases such as investment accounts, or wallets that don’t qualify for the use of sweeping VRPs), and subscription payments (largely to displace continuous card mandates).

Defining Variable Recurring Payments

Variable recurring payments: A form of Open Banking Payment (see below) in which a payment service user provides an ongoing consent for a third party to initiate payments on their behalf. The frequency and value of these payments is not fixed but must remain within the parameters outlined by the customer when they provide consent.


Open Banking payments (OBP): Payments initiated via Open Banking API by a licensed third-party on behalf of a customer. The movement of funds occurs over the existing account to account infrastructure, with settlement directly into the nominated account of the payee. 

Qualitative comparison of the leading near-term non-sweeping VRP use cases for banks

Source: Celent 

While far larger opportunities in terms of overall payment volume, bill payments and digital commerce are slightly more complex areas for VRP to penetrate. In digital commerce in particular, the lack of a clear liability framework around VRP and the widespread use of digital wallets are a challenge to rapid adoption in the short term. In the case of bill payments, while VRP can bring benefits over and above Direct Debit, the maturity of this as a recurring payment method is a barrier to quick volume growth.

What a difference a year makes!

VRP volumes are growing, and quickly. According to data from UK Open Banking, there have been over 4 million successful VRP transactions since October 2022. This has increased from around 10,000 a month then to over 1 million a month in both August and September 2023 and shows a far steeper adoption curve than for single-initiated Open Banking payments. In September, VRP accounted for 8.7% of the 11.8 million Open Banking-initiated payments made in the UK, showing that the concept clearly resonates.

However, we are some way from commercial VRP growing at this kind of pace. Most of today’s VRP transactions will be for account-sweeping transactions, and there remain important hurdles to overcome before commercial VRP can begin to grow. At both the European level (with DRP) and in the case of VRP in the UK, difficulties in shaping the necessary commercial, risk, and liability frameworks remain a significant limiting factor. 

While banks are understandably keen to avoid cannibalising revenues from other parts of their business (chiefly cards), unless VRP is price competitive compared to alternatives, it will simply not be attractive to merchants and other businesses. Reaching a sensible landing point on pricing is therefore essential. Establishing an equally balanced approach to risk and liability is also an active discussion at the UK level. 

Crystal ball time: Where will we be in late 2024?

The obvious conclusion from the past year is that the initial expectations around commercial VRP and DRP were a little too optimistic and underestimated the challenges in agreeing on the necessary commercial frameworks. While there is a clear business opportunity for banks, it will take time to develop, and only once a critical mass of industry participants strike the agreements needed to drive adoption. This will require further and deeper cross-industry collaboration.

These negotiations are detailed, complex, and require costs, risks, and benefits to be shared across a value chain. In short, it doesn’t happen quickly. Celent understands that progress is being made at both the UK and European levels on these points though, and there is a real sense of optimism in the market for the outlook for commercial VRP and DRP. 

In the meantime, it’s likely that we will see the use of Open Banking continue in other areas around the payment landscape. It’s common now for PSPs to offer single-initiated Open Banking payments as an option in digital commerce for example, while others are targeting the recurring payment space by using Open Banking in the workflow for setting up Direct Debit mandates.

Looking ahead, it seems we should expect 2024 to be a year of two halves. With more work to be done on the commercial, risk, and liability frameworks, it seems likely that the first half of the year will be devoted to furthering these discussions. Assuming this is achieved, it seems reasonable to expect to see volume growth beginning in H2. 

There is still much that needs to be achieved, but a review of the progress of VRP and DRP a year from now is likely to be a far more positive one. 

This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.

About Kieran Hines

Kieran is a Principal Analyst in Celent’s Banking practice. His research focuses on the impact of technology-driven change in both the retail and corporate banking sectors, with an emphasis on the role that Open Banking, embedded finance, data and analytics, and cloud technologies have in transforming customer propositions and the long-term value chain in banking.
An experienced analyst with close to 20 years in the industry, Kieran works closely with banks, vendors, and payment processors on their technology and business strategies.

About Celent

For over 20 years, Celent has helped senior executives make confident decisions around their technology strategies. We offer objective advice, backed by a database of thousands of solutions and award-winning global best practice use cases. With real-life domain expertise, we also guide you through the maze of emerging tech in the pursuit of value. We are part of the Oliver Wyman Group, a wholly owned operating unit of Marsh McLennan.

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Keywords: Variable Recurring Payments, dynamic recurring payments, ecommerce, online banking
Categories: Banking & Fintech
Companies: Celent
Countries: World
This article is part of category

Banking & Fintech


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