The nine largest UK current account providers were required by the Competition and Markets Authority to implement VRPs for sweeping services – that’s the automatic transfer of money between a customer’s own accounts – in July 2022. The original timeline had been January 2022, but the Open Banking Implementation Entity, as it was then, recommended an extension.
However, NatWest became the first UK bank to go beyond the CMA’s requirement when it delivered VRPs for non-sweeping services in May 2022.
Since then, pace of adoption has been steady, albeit slower than hoped-for.
Earlier this year, at Open Banking Expo we teamed up once more with our friends at Token.io, the account-to-account payment infrastructure provider, to conduct an industry survey on Dynamic and Variable Recurring Payments (VRPs).
It was our third such industry survey, designed to take the temperature of recurring payments across the UK and Europe, among senior leaders from banks, merchants, payment providers and technology providers.
We published our joint findings in our survey report, The future of Dynamic and Variable Recurring Payments, in October.
Since our last VRP survey, regulation has kept VRP firmly in the spotlight. That is because, in April this year, the Joint Regulatory Oversight Committee (JROC) recommended using non-sweeping, or commercial, VRPs as a pilot for the promotion of additional services, as part of its recommendations for the next phase of Open Banking in the UK.
A VRP Working Group has been convened, chaired by the Payment Systems Regulator, and tasked with developing a blueprint for a scalable implementation of commercial VRP.
So, one of our questions was, which VRP use case should be prioritised by the JROC Working Group? Among our UK-based respondents, 46% backed ecommerce payments as a pilot commercial VRP use case, followed by 27% who believe utility bill payments should be prioritised.
In another sign that the industry is readying for wider uptake of commercial VRPs, 67% of ASPSPs with a UK focus expect to support VRP for commercial use cases in 2024. Only 17% did not know when they would be able to support commercial VRP.
What clearly emerges from our latest survey findings is an industry that is fully cognisant of the benefits of VRPs, with lower costs, lower risks, improved security, and faster settlement times identified as the main upsides.
For example, 70% of respondents perceive VRPs as a lower-cost recurring payment method, versus 46% who thought the same of Direct Debit, and only 8% who attributed this benefit to card-on-file. The findings are similar for lower risk, with 73% of respondents citing this as a main benefit of VRP, compared to Direct Debit (43%) and card-on-file (7%).
When it comes to reliability, it is fair to say the VRP industry has some work to do, as the majority of respondents (56%) perceive this as the main benefit of Direct Debit payments, with VRP lagging slightly (47%).
When asked which single aspect will drive the most end-user adoption of VRPs, 37% of respondents to our survey identified a ‘frictionless user experience/no SCA’, followed by the ‘ability to view/control payments’, at 26%.
We observed similar findings in our 2022 VRP survey, in which 32% of respondents put frictionless user experience as the top potential driver of adoption and 29% the ability to view/control payments.
Interestingly, our survey found that banks believe they will benefit commercially by offering VRPs and that they also see VRP as an opportunity to define a different consumer protection framework.
However, as it stands, the biggest barrier to the widespread rollout of VRP is limited bank coverage. Merchants and payment providers want to offer VRP, but they require the bank coverage to do so. This was a topic of discussion during several panel debates at Open Banking Expo UK and Europe, held across 18 and 19 October.
If industry participants are waiting for demand for VRP from consumers and SMEs, then they may well be waiting a while. It is more likely that the outcome of the VRP Working Group and the pilot they decide on will act as a catalyst.
What is required is for the industry to work together – that’s third-party providers, banks, and merchants – and for commercial VRPs to be tested and proven across all of the UK’s large retail banks through pilot exercises.
Once these pilots are underway in the first half of 2024, I’d like to think the pace of adoption will pick up.
Ellie Duncan is head of editorial and broadcast at Open Banking Expo, covering the latest news on Open Banking, Open Finance, and payments. She is host of the industry podcast ‘Open Banking Expo Unplugged’ and regularly interviews leading figures from across the Open Banking and Open Finance ecosystem.
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