What are variable recurring payments and how could they grow from here

Thursday 6 October 2022 08:30 CET | Editor: Raluca Ochiana | Interview

In line with a mandate from the Competition and Markets Authority (CMA), the UK’s nine largest banks have begun rolling out variable recurring payments (VRP) APIs. TrueLayer’s Matt Parish explains why VRP makes recurring payments less cumbersome and how they could grow from here.


What are the issues with traditional recurring payment methods — for example, card on file and direct debits?

Direct debit and card payments weren’t designed with digital in mind. When customers make an online payment, they want the process to be fast, easy, and secure. Traditional recurring payment methods are none of those things. 

Confirmation for direct debit and card payments can take days, and that keeps businesses from offering a smooth, immediate experience. Both methods require customers to manually input their payment details, which is both difficult and prone to error. And each has its share of security concerns: customers need to provide sensitive information to set up card on file payments, while direct debit lacks strong customer authentication (SCA) that are standard with other payment methods.

Those are just the issues on the consumer side, too. Both options can be expensive for businesses. Card on file payments invoke interchange and processing fees, while direct debit carries its own share of operational costs. 

What is VRP, and how does it address the issues with other recurring payments?

VRP is Open Banking’s answer for recurring payments. Using APIs, it lets customers set up recurring payments of varying amounts directly from their bank accounts. 

The result is similar to a direct debit and card on file, but with greater security and ease of use. Strong customer authentication (SCA) is baked into the process, so customers can initiate recurring payments using a single facial recognition or a fingerprint scan. And there’s no manual data entry, removing the risk of a payment failing due to user error.

VRP has several other advantages over traditional recurring payment methods. For example, they settle immediately when used with real-time payment rails, creating a faster experience. With a customer’s consent, VRP also confirms that the required funds are available before taking a payment, reducing the risk of payment failures.

Which banks currently offer VRP, and in what form?

Last year, the CMA ruled that the UK’s nine largest banks had to introduce APIs that enable VRP. Those rules came into effect earlier this year, when the CMA9 began to roll out their VRP offerings.

However, there was initially ambiguity about the scope of VRP. The CMA’s mandate was to enable ‘sweeping,’ the movement of funds between two accounts owned by the same customer. This raised questions about which types of accounts qualified — could you sweep funds to an online gaming account, for example? What about an account with a utilities provider?

In March, the CMA clarified that sweeping was limited to three types of accounts: 

  • Current accounts, including e-money ‘substitute current accounts’ used by consumers and SMEs

  • Credit accounts

  • Cash savings accounts that can pay interest

Everything else falls outside of the CMA’s scope, so banks aren’t mandated to include them in their current VRP offerings.

So why is VRP useful outside of sweeping?

Sweeping is really just the tip of the iceberg for VRP. Using these APIs, banks could extend VRP beyond the CMA’s mandate to enable recurring payments to businesses. 

Right now, card on file and direct debit are the default payment options for everything from subscriptions to utility bills to ride-hailing apps. Not only is VRP ideal for each of these applications, but it’s also faster, safer and more cost-effective in many cases as well.

Take subscriptions, for example. Card on file payments can be inconvenient here because cards expire, or they get lost or stolen. In turn, this leads to payments failures and churn. VRP doesn’t expire, which helps businesses retain customers and saves customers the inconvenience of updating their information.

How are companies already using VRP to make recurring payments easier?

Already, VRP is proving popular for both sweeping and non-sweeping purposes. 

For the former, companies like Chip are using VRP to help supercharge their savings offerings. Customers establish a savings plan and based on their financial situation in a given month, VRP will automatically sweep a variable amount into their savings accounts.

On the non-sweeping side, proptech companies are already using VRP to automate slow and difficult manual processes. For example, the lettings platform Pink Chilli uses TrueLayer’s API to collect rent, secure late payments and more. 

How do you expect VRP to grow from here?

As with all new payment methods things will move slowly and then all at once. Financial services will likely be the tip of the spear for adoption. VRP will allow lenders to provide flexible and intuitive repayment plans, while personal finance apps could use it to power their smart savings features. 

From there, VRP will likely become a prominent part of ecommerce payments, especially in food delivery and digital content spaces. In time, I’d expect it to become the dominant recurring payment method in these sectors.


Want to know how industry leaders are using VRP to power their recurring payments? Register for TrueLayer's live event 'Getting to grips with VRP', taking place at TrueLayer's head office in London on 13 October at 4 pm.


About Matt Parish

Matt is TrueLayer's Product Lead for Recurring Payments. He joined TrueLayer in 2019, playing a pivotal role in scaling their open banking network, which now processes millions of transactions every day.




About TrueLayer

TrueLayer is a global open banking platform that makes it easy for anyone to build better financial experiences. Businesses of every size use TrueLayer to power their payments, access financial data, and onboard customers across the UK, Europe, and Australia. Founded in 2016, TrueLayer is trusted by millions of consumers and businesses around the world. Our vision is to create a financial system that works for everyone.

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Keywords: ecommerce, payment methods, API, Variable Recurring Payments, SCA, recurring payments, financial services
Categories: Payments & Commerce
Companies: TrueLayer
Countries: World
This article is part of category

Payments & Commerce


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