Henk Van Hulle
CEO, Open Banking Implementation Entity
The introduction of Variable Recurring Payments (VRPs), a pioneering payment instruction hailed as a ‘smart direct debit,’ allows authorised providers to initiate a series of payments for customers at variable intervals and for varying amounts.
VRPs are secure, seamless payments and operate within customer-defined parameters. They offer consumers and businesses greater control and transparency than direct debit and card-on-file instructions. Here at the Open Banking Implementation Entity, delivering the standard for VRPs is the final milestone in our roadmap as mandated by the Competition and Markets Authority, and we’ve been pleased to see ‘sweeping’ through the technology of VRPs already delivering tangible benefits.
Supporting borrowers
With the cost of living rising, sweeping can improve financial resilience in several ways. For example, sweeping can suport borrowers by enabling surplus funds to be automatically transferred from a current account to a credit card, overdraft or loan account to shrink larger debt faster. This can help customers repay a debt before incurring repayment fees and to keep borrowing costs to a minimum.
Estimates suggest that 15% of the UK’s small businesses have around £100,000 sitting in low-interest current accounts.
Sweeping to earn interest
VRPs can support effective saving by automatically moving surplus funds out of current accounts and into interest-earning savings accounts. Estimates suggest that 15% of the UK’s small businesses have around £100,000 sitting in low-interest current accounts — a total of £130 billion. With interest rates rising, moving cash to savings accounts that optimise returns would benefit those small businesses hugely.
Non-sweeping use cases
While our mandate is only to deliver the standard for VRPs to support sweeping, many eyes are now on VRPs for non-sweeping, paving the way for consumers to easily pay for services such as utility bills, subscriptions and charitable donations.
One major UK retail bank recently launched VRPs for non-sweeping with third-party payment providers, partnering with the international food charity — Charity Right and lettings management platform Pink Chilli.
The use of non-sweeping VRPs by subscription services will also allow customers more control and confidence around repeat expenditure. They will be able to clearly see what they are committing to, and when, so that they can avoid falling into the dreaded ‘subscription trap.’
We are delighted to see VRPs — sweeping and non-sweeping — move into daily use, and we look forward to seeing other uses of this innovative payment method deliver benefits to consumers and businesses alike in 2023 and beyond.