Driving Open Banking adoption – the journey of VRPs

Being the first of the CMA9 banks to provide Variable Recurring Payments back in 2022, what are your main learnings from this past year?

There have been two key learnings for us.

Firstly, pragmatism: we’ve learnt that you don’t necessarily need to address every gap in a proposition before it launches. While the industry still needs to develop a common framework for liabilities and consumer protection for VRP, we’ve been able to go live quickly with VRP – without putting our customers at risk – by focusing on risk-free use cases in the first instance, such as charity donations, and by establishing bilateral agreements with payment providers.

We’ve also learnt that industry collaboration is key. This is why NatWest is open to working with all Payment Initiation Service Providers (PISPs) on VRP. As well as piloting VRP through Payit – our Open Banking payments proposition – we’ve already made our VRP API available to six additional PISPs, who are now building a pipeline of deals with merchants to offer VRP to their customers.

We’re also looking forward to sharing our learnings on VRP via the working groups organised by the Joint Regulatory Oversight Committee (JROC). As a result of being the first bank to offer VRP as a payment option, we’ve already spent a lot of time looking at the key challenges that the working groups will be addressing, including liabilities and consumer protection. We must develop industry-wide standards on these points, to accelerate customer adoption of VRP.

What is the status of the adoption of VRPs in the UK and what can be done to incentivise more banks to adopt them and allow VRPs to become mainstream?

As a proposition, VRP is still at a nascent stage. NatWest is currently the only bank that is going above and beyond the CMA9 mandate by offering VRP for non-sweeping use cases.

However, VRP will not be a success without wider adoption by other banks. It needs to be offered by all UK banks, to be seen by merchants as an appealing payment solution.

For this to be the case, there needs to be a reward involved for all participants – banks, payments providers, merchants, and consumers. I think this is one of the key principles that we need to agree on at an industry level when it comes to VRP and, indeed, Open Banking in general.

In short, for Open Banking to be successful and to truly drive innovation, we need to move away from the existing freemium model. This is key to ensuring that every participant has the right level of commercial incentives to make VRP, and Open Banking overall, a success.

What are the differences between VRPs for sweeping versus VRPs for non-sweeping? What are the use cases that apply to each?

Since July 2022, all CMA9 banks have been required to offer VRP for account sweeping use cases – in other words, the automatic transfer of money between accounts belonging to the same individual.

By using VRP for account sweeping, customers can optimise their savings – for example, by setting up regular, automatic transfers of surplus cash from their current accounts to their savings accounts.

But what hasn’t been mandated by the regulator is the use of VRP for non-sweeping use cases.

At NatWest, we believe strongly in opening up VRP functionality beyond sweeping, and so we’ve already made VRP available for non-sweeping use cases – as a quick and easy for consumers to make recurring and one-off payments.

The potential of VRP for non-sweeping use cases is quite broad, as it can be used, for example, as a way to pay for recurring utility bills, subscriptions, and charity donations, as well as one-off ecommerce purchases. It offers a convenient alternative to Direct Debits, standing orders, and card-on-file payments.

What benefits were brought by VRPs for merchants and consumers? How can customer experience be improved?

VRPs address many of the gaps in traditional payment methods. 

VRP allows customers to easily set up and cancel recurring payments, plus gives them greater visibility and control over their outgoing payments, with the option for live notifications and the ability to set caps. It’s also secure and less prone to fraud than other payment methods.

For merchants, VRP offers immediate settlement of payments, as well as a more cost-effective way to collect payments (as a result of reduced intermediation).

What more do you expect from regulators to enable VRPs to reach their full potential?

NatWest is an active participant in the industry working groups established by the Joint Regulatory Oversight Committee (JROC) to drive increased adoption of VRP.

However, while we are fully supportive of the JROC process, we believe the industry can, and should, develop commercial models for non-sweeping VRP without a regulatory mandate. Based on our experience over the past few years, we’ve learned that the best way to expand the UK’s Open Banking ecosystem is for banks to take the lead on delivering new, commercialised APIs.

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 Raffaele Brusco

Raffaele is leading the commercialisation of VRP at NatWest Group. With over 10 years of international experience in finance, Raffaele previously worked at Simon-Kucher & Partners in Milan, where he defined pricing and commercialisation strategies for Italian retail and investment banks.

About NatWest Group

NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families, and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we.