VRP (Variable Recurring Payment) – Helping to reduce financial vulnerability?

VRP APIs are being implemented by the UK’s 9 largest banks to enable customers to freely sweep money between their accounts following a ruling by the Competition and Markets Authority (CMA) in July. In practice, that could help people avoid overdraft fees or increase their automated savings.

by Kat Cloud, UK Policy Lead, Plaid

This is a major step forward and a win for both consumers and businesses as the CMA continues to create more competition across the banking sector. Through this change, consumers and business owners can feel more confident in their money management without fearing unnecessary, not to mention avoidable, charges.

What are VRPs?

Like a direct debit, where a business is able to collect recurring payments from the same customer without permission for every payment, VRPs offer businesses and consumers a similar process through open banking. Banks integrating the VRP API will enable third party providers (TPPs) to initiate variable payments at variable times, without getting the permission from the consumer every single time. As with the overarching mission for open banking, VRPs are intended to create a seamless and frictionless experience for customers.

One of the most common use cases of VRP APIs is sweeping, also known as me-to-me payments, which use TPPs accessibility across different accounts to understand where people can seamlessly transfer money from one account to another. From a consumer perspective, there are many practical applications for this, such as transferring money into an account to prevent dipping into an overdraft therefore avoiding fees, or topping up a savings account by transferring the leftover cash from a coffee purchase.

How can VRP APIs help to eradicate financial vulnerability?

The VRP mandate is the latest move in protecting customers while helping them to lead healthier financial lives. Indeed, as open banking continues to foster an environment where consumers and businesses have access to a wide range of financial products and services, the VRP API is the next step in creating a seamless financial ecosystem that reduces stress, confusion and saves time.

For those in a vulnerable financial situation, the VRP mandate will help them to monitor and manage their accounts. For example, if a consumer has insufficient funds in one account, VRP APIs can transfer money over from another account to prevent them entering an overdraft. Given its smart nature, the API has the capability to move money seamlessly, without constant permissions. In turn this helps prevent consumers from being charged high overdraft fees and penalties, all while creating a pathway to a more secure financial situation.

What’s next?

Once again, the UK is leading the pack against its EU counterparts in creating a fairer financial system through the power of technology, while at the same time maintaining the central ethos of open banking – putting the consumer back at the heart of the financial ecosystem.

Looking ahead, VRPs will certainly have broader use cases in the future. As the process is like direct debit payments, we can expect to see variable payments for utilities bills, investment accounts, subscriptions and more. As we continue to transition towards open finance, the VRP ruling is an important step in promoting financial democracy while helping to eradicate financial vulnerability.