What are Variable Recurring Payments (VRPs)?

Variable Recurring Payments (VRPs) serve as the recurring payments arm of Open Banking. They enable businesses to collect recurring payments directly from a customer’s bank account within agreed limits, such as amount, frequency, or duration—without requiring customers to re-authenticate each time. Payments are executed automatically without the need for Strong Customer Authentication (SCA) offering a secure and convenient solution.

Over the past few years, there has been a steady shift towards Open Banking-enabled payments. As businesses that handle recurring payments recognise the benefits of VRPs, this payment method is poised for significant growth. The advantages of VRPs, including enhanced merchant flexibility and reduced operational costs, are driving adoption across various industries.

By July 2024, sweeping VRPs accounted for 2.45 million transactions. Looking ahead, projections indicate that total annual VRP transactions will reach 108.72 million by October 2025. This substantial increase underscores the growing role of VRPs as an attractive option for recurring payment needs. By integrating VRP alongside card payments, businesses can offer customers a faster, more reliable, and cost-effective way to pay, while ensuring alignment with best practices for consumer trust and financial transparency.

Sweeping vs Non-Sweeping VRPs

There are two main types of VRPs: sweeping and non-sweeping.

Sweeping VRPs involve the automatic movement of funds between two accounts owned by the same individual or business, often referred to as “me-to-me” payments. This type of VRP is commonly used for managing personal finances, such as moving surplus funds from a current account to a savings account, transfers to destination accounts used for loan repayments or preventing overdrafts by transferring funds between accounts.

Non-sweeping or Commercial VRPs, on the other hand, involve payments between different account holders, such as from a consumer to a business or utility provider, often referred to as “me-to-business”. These are planned for use in scenarios such as payments to regulated financial services, utilities, and government entities. This type of VRP offers a secure and efficient way to make recurring payments to external parties, potentially reducing costs associated with traditional payment methods like direct debits and card transactions.

What are the benefits of Sweeping VRPs?

Businesses dealing with a high volume of recurring payments face a number of challenges, the most prevalent of which are building a positive customer payment experience, reducing payment failures wherever possible, and ensuring payment security to minimise fraud.

Unlike traditional recurring payment methods like Continuous Payment Authority (CPAs) and direct debit, VRPs provide:

• Greater Flexibility with dynamic adjustments to payment terms, including amounts and schedules – this allows customers to manage their finances more effectively and avoid missed payments, and supports merchants in reducing the need for manual intervention to collect funds.
• Enhanced Security as VRPs rely on Strong Customer Authentication (SCA) to mitigate fraud and use open banking APIs for secure transactions – this enhances trust in the payment process and aligns with regulatory requirements.
• Speedy transactions with near real-time payment processing for both approval and settlement of funds.

What are the benefits of non-sweeping VRPs?

Non-sweeping or commercial VRPs enhance flexibility and control in managing payments between different parties, enabling expanded payment scenarios beyond personal account management. By leveraging account-to-account solutions, VRPs eliminate the need for card details, reducing the costs associated with card payments and minimising the risk of chargebacks. This makes VRPs more cost-effective for both consumers and merchants compared to traditional payment methods.

Non-sweeping VRPs utilise Strong Customer Authentication (SCA), enhancing security and reducing the risk of fraud since no card information is stored. The digital setup of VRPs also eliminates paperwork, reducing manual errors and fraud risks. Additionally, consumers can set up, view, update, or cancel VRP mandates easily through various channels, providing greater transparency and control over their finances. Merchants benefit from faster settlement times, allowing for better cash flow management and real-time financial visibility.

The flexibility of non-sweeping VRPs also opens up potential for new business models. For instance, they can enable dynamic pricing for subscriptions or variable insurance premiums based on usage. This innovation can lead to more personalised and efficient financial services, benefiting both consumers and businesses.

Offering VRPs alongside other payment methods

By offering VRPs alongside card payments, businesses can provide customers with a quicker, more dependable, and cost-efficient payment option, all while adhering to best practices for consumer trust and financial transparency.

Interested in learning more about how VRPs could benefit your business? Get in touch.