Welcome back

It's always good to see you back here! Join us around our campfire.

Remember me

Reset password

Enter the email associated with your account and we'll send an email with instructions to reset your password

Check your email

We have sent a password recover instructions to your email.

When the history of Open Banking and Open Finance is written, the launch of Variable Recurring Payments (VRP) will be regarded as a landmark event. At the end of July 2022, the UK’s nine biggest banks – the CMA9 – were mandated to introduce VRP for sweeping, which is the automated movement of money between accounts. This “me to me” use case is only the beginning of a revolution in payments.

However, there are questions which must be answered before the many benefits of VRP are unlocked. To understand the opportunities and challenges of VRP and explore the many use cases they enable, Open Banking Excellence (OBE) gathered leaders and pioneers around a Campfire hosted by Huw Davies, CCO and Co-Founder Of Ozone API.

Helen Child, OBE Founder, opened proceedings and said: “Without a doubt, VRPs are the largest single step forward for Open Banking since the first payment APIs were launched. They will play a huge role in elevating Open Banking payments to offer genuine competition for direct debits and card rails.

“VRPs are rightly regarded as a game-changer. For VRPs to really, truly deliver on the opportunity they present the industry, we all need to

Going Beyond the Mandate With NatWest

When the CMA9 introduced VRP, NatWest was the first to announce that it would go beyond the mandate to deliver non-sweeping VRP. This year, NatWest signed agreements with TrueLayer, GoCardless, Crezco, Token, Yapily and Tink to “offer VRP as a new payment method”.

During a fireside chat, Raffaele Brusco, Senior API growth manager – leading VRP commercialisation at the NatWest Group, said the bank had been “working with the regulator in terms of defining the standards and requirements” for VRP since 2020. For Raffaele, “the big opportunity for VRP is yet to come”. 

“For us, the commercial part of VRP – non-sweeping – is the opportunity,” he continued. “We have supported these opportunities from the early days and put the customer at the very centre. Customers use established forms of payment such as cards, direct debit, or standing orders, but those are not perfect. Cards and direct debit might be open to fraud, for instance, because customers need to share personal information. VRP can be the product that unlocks and solves payment challenges. Putting customers at the centre has led us to say this is the right thing to do.

“If we think of VRP as the first step towards building a seamless one-click, almost zero-click payment experience, then I think we are unlocking opportunities. We can create something that is value-added in the form of simple, mobile commercialisation.”

 
Liability and Disputes

One of the major challenges NatWest and other pioneers face with introducing VRP is a lack of regulatory clarity around liability and disputes. Will this stop the implementation and adoption of VRP?

“We are waiting for the regulator to provide us with more information in terms of how to manage liability,”  Raffaele added. “However, there are use cases which can go live even if there is not a fully-fledged liability model. When we sign a contract, we will suggest rules in terms of disputes and liability that will govern the relationship over the specific use case.”

The Open Banking payments platform Token is one of the six companies that signed agreements with NatWest to offer non-sweeping VRP for use cases such as “providing a convenient alternative to existing payment options, such as direct debits and online card payments”.

Charles Damen, Chief Product Officer of Token, said: “[Working with NatWest] was an interesting process from the perspective that what we’re really trying to do is develop a new set of rules for a new form of payment. At the moment, there’s a liability model in PSD2 from a fraud perspective, there is also a model for similar payments for commercial disputes. Should there be similar consumer protection across all payment methods? We don’t believe that that should be the case. Each payment instrument has different capabilities, different features and different benefits, and therefore consumer protections should not be the same.

“If you take an analogy from the Netherlands, where iDEAL is the largest payment method and processes close to 70% of all e-commerce transactions, the fraud liability is borne by the banks, and if there is a commercial dispute, this will basically resolve the issue between the consumer and a merchant. I think that when a consumer buys something from a merchant, that is really a direct relationship between the merchant and the consumer. It is the merchant that has a refund capability to enable the consumer to make the consumer whole in case there is an issue. With VRP, I think there is an opportunity to add some additional protection for consumers – but it can be solved in a different manner.”

 
Non-Sweeping VRP

The CMA’s July mandate only requires banks to implement a very basic form of VRP. Dan Morgan,

European Policy Lead at Plaid, warned that “banks are not really incentivized to make non-sweeping APIs available, even though the business case is there for all banks”.

He continued: “If we want to make this successful in the UK, bilateral approaches are only going to go so far. That is why we’re having this discussion at the moment at the JROC, the Joint Regulatory Oversight Committee, where Open Banking is coming together to think about how this works. Coverage is one challenge. There are also questions about the role of regulators and the future entity which will replace OBIE. It will be helpful for the entire industry and provide certainty for consumers and businesses alike. But we are also keen not to replicate the same consumer and payment protections we have now. There’s no need for chargebacks, for instance, we want to build a push framework, not a pull framework. You don’t want to share your card details. There are lots of other safety precautions in and around Open Banking style payments. The future entity,  Treasury and JROC will need to intervene if we really want to take the next step.”

Dan also set out a variety of use cases for sweeping and non-sweeping VRP. He said: “We are seeing sweeping use cases in savings and financial management as well as in wealthtech to move excess funds into ISAs or investment accounts. The bigger game and larger opportunity involves managing active subscriptions, extending one-click payments to e-commerce platforms, and really pushing into that direct debit and card-on-file market. Sweeping, although it is a real game changer, is limited by the CMA order. So we’re looking to try and drive forward. That next market is going to be super exciting in the UK.”

 
Consumer and Merchant Readiness

The success of VRP will not rely entirely on the work of industry pioneers and forward-thinking regulators. Educating merchants and consumers is a major challenge which must be overcome in order to drive the adoption of VRP and Open Banking.

Siamac Rezaiezadeh, Senior Director of Product Marketing, GoCardless, said: “I spend a lot of my time talking to merchants, but also talking to payers, because ultimately, there are lots of things that drive adoption. We developed a framework called the eight dimensions of payments. One of those dimensions is this idea of preference. What do payers actually prefer to pay with, and why do they have those preferences? There are different kinds of preferences for payment methods, depending on the use case, whether it is a subscription, instalment, regular invoice, or another form of payment.

“But when you dig into not just stated preferences, but what payers actually care about when it comes to making a checkout choice and what stops them from switching to a new payment method, we see very interesting behaviours. More than two-thirds of payers would abandon the checkout process if it was too complex. I’m sure that’s kind of obvious. Yet I think we often forget that it’s actually ease of use and convenience that people optimise for when they’re at the point of purchase. Likewise, 45% of payers would abandon a payment at checkout if they had to enter payment details at that point of checkout. Anything that makes things easier and removes the need to put in payment details is super interesting.  I think that VRPs are not just beneficial for merchants. With the right use cases, they will meet the needs of payers as well.

Helen Child, Founder & CEO, Open Banking Excellence

If you missed our VRP & Beyond Campfire, take a look here:

Explore more

Other
Articles

Other Articles

Keep indulging yourself with invaluable content on the latest developments in Open Banking and Open Finance