The world of payments is changing. The advent of Open Banking – a new technology that enables people and companies to share their financial information securely – has resulted in a range of innovative ways to pay that can be faster, easier and less prone to fraud than old-fashioned methods.
One of these new payment methods is Variable Recurring Payments (which is often shortened to VRPs). And it’s really burst onto the scene – between October 2022 and September 2023, 4 million successful VRP transactions took place, with a million of those transactions taking place in September 2023 alone. We spoke to Tim Johnson, Head of Strategy at Payit by NatWest, which is at the forefront of commercialising VRPs, to find out what they involve.
What are Variable Recurring Payments?
Basically, they enable you and your customers to set up recurring payments securely and quickly. These payments can be for different amounts and don’t have to be taken at regular intervals. They might also involve one-off payments in addition to regular payments. Your customer authorises the maximum amount that can be taken from their account over a given time period (which could be, for example, per day, per month or per year), and when in the future the payments should stop. They can also cancel these payments whenever they want.
Just like single immediate payments, VRPs are powered by Open Banking, which means your customers safely connect who they’re paying with their bank without the need to input any card or bank details. They’re generally seen as the Open Banking equivalent of direct debits and card-on-file payments.
Are there different kinds of VRP?
VRPs fall into two main categories – sweeping and non-sweeping. Sweeping VRPs involve money being transferred automatically between a customer’s own accounts, possibly at different banks. Good examples of this include moving money from a current account into a savings account, or using money from one account to repay a loan or overdraft, or to avoid falling into overdraft in another account. Once the customer has consented to the parameters and thresholds, they don’t need to do anything – everything’s automatic.
Non-sweeping VRPs, which are often referred to as commercial VRPs or discretionary VRPs, involve payments to third parties, such as a customer paying their gas or electricity bills, for a gym membership or their Amazon Prime subscription.
As it stands, the financial regulator in the UK has only authorised sweeping use cases for VRPs.
What are the benefits of VRPs for businesses?
VRPs could provide some major advantages to businesses.
They help you get your money quicker, improving your cash flow – VRPs can be set up instantly, whereas it takes three working days to get a direct debit up and running. They’re processed very quickly, whereas direct debit and card payments can take up to five days to find their way into your account. They also work 365 days a year, so there’s no waiting for your money at the weekend or on bank holidays (in which case a direct debit would be taken the following Tuesday).
If a direct debit payment fails, you have to go to the time and expense of chasing the customer for payment. And if a card on file payment doesn’t work, you may have to pay for processing that failure. This isn’t the case with VRPs. The fee structure of card on file can also make it unsuitable for high volumes of low-sum payments.
Because you don’t need to take any of your customers’ card or bank details, VRPs involve less data protection burden for you. They also involve fewer parties – issuers, acquirers and 3DS processes all play a part in debit card payments – so there’s less that can go wrong, which makes it more likely you’ll get paid. Just as an indicator of what can go wrong, ONS figures show there was a 0.90% failure rate for direct debits in February 2024.
And what are the benefits for customers?
There are also some great benefits for your customers.
First, VRPs are fast – they don’t take more than a couple of clicks to set up. They’re also far more flexible than direct debit and card on file payments because people can choose any payment date, set maximum payment limits and cancel them whenever they like – right up to the moment before the money is taken from their account. In contrast, it can take days to cancel a direct debit. They can also set a maximum amount of money to be collected, helping them manage their money.
If a direct debit fails due to insufficient funds, the charge for businesses could be up to £50 and could damage customer retention. And because people don’t need to input their card or bank details when setting up a VRP, there’s much less risk of fraud. They also have much better oversight of what’s going out of their accounts – it’s easy to see all their VRPs in one place, whereas banks can’t provide an overview of all the subscriptions someone pays for with their card.
Why choose NatWest for VRPs?
Sweeping use cases are already providing businesses and customers with some great benefits, but there’s no denying that we’ll only really see VRPs come into their own once non-sweeping VRPs are authorised. At NatWest we’re ready to go as soon as the industry has agreed a framework.
Meanwhile, a number of fintech companies offer VRPs, but as a major bank we’re subject to stricter regulation, giving you more peace of mind that we’re in it for the long haul. We also offer some product features that fintechs don’t, such as Confirmation of Payee.
To find out more about how VRPs could help your company and get started on your journey, just click on the link below.
You’ll need to sign up to Payit terms and conditions and you may need to hold an account with us. Your business must be based and trading in the UK with a turnover above £2 million. You must be 18 years or older. Fees apply. Speak to a NatWest Relationship Manager (where relevant) for further information, or request a call back.