Variable recurring payments (VRP) might sound technical, but they are here to make life easier for businesses and consumers alike. Born from Open Banking, VRP brings a fresh approach to how we handle regular payments, offering greater flexibility, control and security.
Whether you are looking at cash flow management, smoother customer payments or increasing sales, VRP could soon become a major asset for corporate treasurers.
Let’s break down what VRP is, how Open Banking supports it, and why treasurers should be paying close attention to this evolving space.
Variable recurring payments (VRP) are a new, flexible way for customers to authorise payments directly from their bank accounts through third party providers. Think of it as giving permission for payments to be made on your behalf, but with clear limits in place so that you’re always in control.
Customers can set parameters, such as how often payments happen and the maximum amount, all of which are visible in their banking apps. If something changes, they can cancel or re-consent in real time, offering more control and flexibility than traditional direct debits.
The key appeal of VRP lies in the seamless, secure experience it offers. By giving customers the ability to set specific limits and manage everything from their bank’s app, VRP ensures security and control, all while simplifying payment processes.
This is a significant shift from how payments have traditionally worked, particularly with direct debits, as VRP offers more flexibility without sacrificing security.
When we talk about VRP, it is important to understand that the technology behind it is the same for both types of use cases: Sweeping VRP and Commercial VRP. The key difference here is how they are applied.
Sweeping focuses on ‘me-to-me’ payments, which is all about transferring money between a customer’s own financial accounts. For example, this could involve moving funds to a savings account, repaying an overdraft or making payments on a loan.
The key here is that both accounts are in the same name, but they could be with different banks or financial institutions. Sweeping has been mandated for the UK’s nine largest banks – known as the CMA9 – but other banks have voluntarily jumped on board, recognising the benefits for their customers. For consumers, this offers a hands-off way to manage their finances more efficiently – by automating savings and repayments without the hassle.
Commercial VRP, on the other hand, extends beyond moving money between a customer’s own accounts. This ‘me-to-you’ payment option allows VRP to be used for recurring payments to third parties, such as paying for subscriptions and utility bills, or even replacing card-on-file payments for regular purchases.
Unlike Sweeping VRP, Commercial VRP isn’t mandated yet. Right now, not many banks are offering this service. However, there’s strong interest across the industry, and regulators are actively exploring pilots to scale Commercial VRP in the near future. For businesses, this could be a game-changer – offering an alternative to direct debits and card payments with lower fees, fewer chargebacks and reduced fraud risk.
Treasurers should consider how payment strategies align with evolving customer expectations
For corporate treasurers, VRP offers several compelling advantages. One of the most significant benefits is that VRP payments run on the Faster Payments rails, enabling real-time transactions.
This speed provides a major boost to cash flow forecasting, ensuring payments are processed immediately and positively influencing working capital cycles. Beyond speed, VRP presents an important alternative to traditional direct debit and recurring card payments. With the potential for lower transaction fees, no chargebacks and reduced fraud risk, VRP offers treasurers a more cost-effective and secure payment solution.
Moreover, treasurers should consider how payment strategies align with evolving customer expectations. As consumers increasingly demand seamless, one-click payment experiences, VRPs could be the key to delivering just that. By adopting VRP, businesses can enhance customer satisfaction, drive higher conversion rates and, ultimately, benefit from more consistent and reliable cash flows.
For VRP to really take off, it’s going to require large businesses to embrace this new way of handling payments. Corporate treasurers should consider how VRP fits into their broader payment strategies.
There’s also the fact that Open Banking payments are gaining serious momentum. In the first nine months of this year alone, 156.4m Open Banking payments have been processed. Compared with the same period for 2023, that’s an impressive 70% increase!
Right now, VRP is emerging as a promising alternative to traditional payment methods
Open Banking is what makes VRP possible. It provides the secure infrastructure that enables banks to safely share payment services with third party providers. While we’re not quite at the point where data sharing and payment systems are fully integrated, we’re getting there.
Soon, we’ll see even more possibilities. Imagine a world where customers don’t have to enter all their details at checkout – just one click and payment is complete. This vision isn’t far off, thanks to upcoming changes such as the Digital Information and Smart Data Bill, which will open new doors for data-driven innovation.
Right now, VRP is emerging as a promising alternative to traditional payment methods, such as direct debits or stored card payments. For businesses, this means more control over recurring transactions, fewer errors and fewer failed payments. In the short term, VRP might not completely replace direct debits, but they can work alongside them. This gives businesses the chance to adopt VRP gradually, without needing to overhaul their payment systems overnight.
The Payment Systems Regulator is working with industry players on a pilot for Commercial VRP, focusing on lower-risk use cases, such as payments to utilities, financial firms and government bodies. This pilot is expected to launch in 2025, offering the chance to test VRP’s full potential before it rolls out more widely.
Even established players such as Visa are getting involved, having recognised that account-to-account payments are a key part of the future. This vote of confidence is a strong signal that VRP is here to stay.
VRP represents a big shift in how payments are handled, bringing speed, flexibility and improved customer experiences. For treasurers, it means better cash flow management, fewer costs and a chance to stay ahead of changing customer expectations.
While VRP is still in its early stages, it’s clear that the future looks promising as regulators and industry leaders invest more into VRP. For treasurers, it’s a perfect time to discuss VRP internally and to engage with industry experts to identify how it can be used to improve customer and business outcomes.
Ritu Sehgal is head of transaction services and trade at NatWest. For more information on VRP, check out NatWest's 'Bank of APIs' variable recurring payments page.
This article was taken from Issue 4, 2024 of The Treasurer magazine. For more great insights, members can log in to view the full issue.
