Variable Recurring Payments – A Key Milestone Achieved

UK Finance publishes a report on facilitating commercial Variable Recurring Payments through the use of model clauses.

What are Variable Recurring Payments?

Variable Recurring Payments (VRPs) are a form of payment instruction that allows customers to safely connect authorised payment providers to their bank account. The payment provider can then make recurring payments where the timing or the amount might vary, like a phone bill, on the customer’s behalf within agreed limits.

Why do VRPs matter?

From a practical perspective, they could help consumers and SMEs achieve tangible benefits in money management such as building up savings and preventing going into overdrafts. They could also help pay bills precisely – take for example paying your electricity bill. Many people pay a set amount by direct debit which isn’t the actual amount owed – however, VRPs could allow you to pay the actual amount each month.

From a regulatory perspective, the Joint Regulatory Oversight Committee (JROC - made up of the FCA, PSR, CMA and HM Treasury) are responsible for (among other things), considering the vision and strategic roadmap for further developing open banking, and the planning, preparation and overseeing of the future open banking entity. JROC has identified VRP as a key test case for premium application program interfaces (APIs), and there is momentum for VRPs to become a credible and accessible payment option in the future.

UK Finance firms believes that VRPs have the potential to offer customers more choice about how they pay, the way merchants receive the payments, and bring more competition into the payments landscape.

What are the model clauses?

UK Finance, in association with law firm Addleshaw Goddard LLP has released model clauses to support the development of VRPs for commercial applications in the UK. 

The main reason that the model clauses are so valuable is that they provide a set of model contractual terms that cover the arrangements between financial firms. As well as potentially saving ecosystem stakeholders considerable resource, they will also help deliver a consistent approach (and therefore related benefits for both firms and consumers), and are a genuine stepping stone to the wider roll out of VRPs.

UK Finance has made sure the clauses are open source, and while their use is entirely voluntary, UK Finance encourages all stakeholders in the open banking ecosystem to consider their use where possible so we can unlock the VRPs benefits.

What next?

The model clauses are a crucial step in a wider implementation of VRPs, but they are just a step. It’s up the whole industry (regulators, firms and trade associations) to work together to achieve the potential benefits VRPs have to offer, and in particular, expand VRP through a commercially driven model that delivers the best outcomes for customers.