VRPs: The Future of Payments
Variable Recurring Payments: The Future of Open Banking
The payments landscape is rarely static. For decades, the mechanisms through which money moves from a consumer to a business have evolved in lockstep with technology. From the early days of physical cash to the ubiquity of plastic cards, and now the rise of digital wallets, each shift has aimed to reduce friction and increase security. Today, we stand on the precipice of another significant evolution: Variable Recurring Payments (VRPs).
Often hailed as the next frontier in Open Banking, VRPs represent a fundamental shift in how recurring transactions are handled. They are not merely an incremental upgrade but a re-architecture of the payment mandate, offering a level of flexibility and control that legacy systems like Direct Debit and Card-on-File cannot match.
For financial services, particularly within the insurance and subscription sectors, understanding VRPs is no longer optional — it is a strategic necessity.
What Are Variable Recurring Payments?
At its core, a Variable Recurring Payment is a payment instruction that allows a customer to connect their bank account to a payment service provider, giving that provider long-lived consent to make payments on their behalf within agreed parameters.
Unlike a standard Open Banking payment, which requires the customer to authenticate every single transaction via their banking app (Strong Customer Authentication, or SCA), a VRP mandate requires authentication only once at the setup stage. Once the mandate is established, funds can be moved automatically, provided the transaction falls within the limits set by the customer — such as a maximum amount per payment or a specific frequency.
This brings the convenience of a Direct Debit into the real-time era. Where Direct Debits are pull-based payments processed via slow batch files (often taking days to clear), VRPs utilise the Faster Payments rails in the UK. This means settlement is immediate, irrevocable, and transparent.
The Two Types of VRPs
To fully grasp the potential of VRPs, it is important to distinguish between the two primary use cases currently under discussion in the industry:
- Sweeping VRPs (Me-to-Me): This is currently the mandated form of VRP in the UK. "Sweeping" refers to the automatic movement of funds between two accounts belonging to the same person. Common examples include sweeping excess funds from a current account into a high-interest savings account or moving money to pay off a credit card bill to avoid interest charges.
- Commercial VRPs (Me-to-Business): This is the game-changer for merchants. Commercial VRPs allow customers to pay businesses for goods and services. This covers everything from utility bills and insurance premiums to digital subscriptions and e-commerce one-click checkouts. While not yet fully mandated across all banks, the industry is rapidly moving towards broad adoption driven by commercial agreements.
Why VRPs Are Solving Critical Industry Problems
The enthusiasm surrounding VRPs stems from their ability to solve deep-rooted inefficiencies in current payment methods. For businesses managing high volumes of recurring revenue, the limitations of cards and Direct Debits are all too familiar.
1. Eliminating the "Card-on-File" Friction
Card payments are prone to failure for reasons unrelated to a customer's ability to pay. Cards expire, get lost, or are cancelled due to fraud on a separate transaction. In the subscription economy, involuntary churn — where a customer loses access to a service simply because their payment details failed — is a significant revenue leak.
VRPs bypass the card networks entirely. The payment is directly linked to the bank account, which does not "expire" or get lost in the mail. This permanence significantly increases payment success rates and reduces the administrative burden of chasing customers for updated card details.
2. Modernising the Direct Debit
Direct Debit has been the workhorse of recurring payments for decades, but it shows its age. It is slow, lacks real-time visibility, and offers a clumsy customer experience when things go wrong. If a Direct Debit fails, the merchant often doesn't know until days later, by which time the customer might have incurred fees or had their service interrupted.
VRPs offer instant confirmation of funds. A business knows immediately if a payment has succeeded or failed. This real-time certainty allows for better cash flow forecasting and immediate reconciliation, removing the "pending" limbo that complicates financial operations.
3. Enhancing Security and Reducing Fraud
Security remains a paramount concern for financial services. Card details stored on merchant servers (even when tokenised) present a target for bad actors. VRPs operate on a "push" model where the merchant never sees or stores sensitive credentials. The consent is held at the bank level, and the customer authenticates via their trusted banking app biometrics. This significantly reduces the scope for credential theft and fraud, lowering the burden of PCI DSS compliance for merchants.
The Strategic Impact on Financial Services
For sectors like insurance, lending, and wealth management, the implications of VRPs extend beyond simple transaction processing. They open the door to new product structures and customer relationships.
Smarter Debt Repayment and Lending
In the lending space, VRPs allow for "smart" repayments. Instead of a rigid fixed monthly date, a lender could use Open Banking data to identify when a customer has received their salary and initiate the repayment then, or adjust the repayment amount based on affordability data (within agreed limits). This flexibility can help customers avoid overdrafts and manage their finances better, while lenders see improved repayment rates.
Dynamic Insurance Models
The insurance industry is increasingly moving towards usage-based models (e.g., pay-per-mile car insurance). Traditional Direct Debits are ill-suited for variable amounts that change frequently. VRPs are perfectly designed for this, allowing insurers to collect exact amounts based on usage without requiring the customer to re-approve every month's variable premium.
Challenges to Wide-Scale Adoption
Despite the clear benefits, the path to ubiquitous VRP adoption is not without hurdles. We must navigate these challenges with a clear head to unlock the full potential of the technology.
Commercial Frameworks
While Sweeping VRPs are mandated by the Competition and Markets Authority (CMA) for the largest UK banks, Commercial VRPs (c-VRPs) require commercial agreements between banks and Payment Initiation Service Providers (PISPs). Determining a fair pricing model that incentivises banks to build the infrastructure while keeping costs attractive for merchants compared to card fees is an ongoing industry debate.
Consumer Protection
Consumers are accustomed to the strong protections offered by credit cards (like Section 75 in the UK) and the Direct Debit Guarantee. For VRPs to gain mass trust, the industry must establish robust dispute resolution mechanisms and consumer protection frameworks that rival existing methods. A customer needs to feel as safe paying via VRP as they do with a credit card.
Fragmentation and User Experience
For a payment method to succeed, it must be universal. If a merchant offers VRP, it needs to work for all their customers, regardless of who they bank with. The current landscape is somewhat fragmented, with different banks at different stages of readiness. Furthermore, the user experience (UX) of setting up a mandate must be seamless. If the "consent" journey within a banking app is clunky or confusing, drop-off rates will be high.
The Road Ahead: A Hybrid Future
It is unlikely that VRPs will completely replace cards or Direct Debits overnight. The future of payments is not about a single winner, but about orchestration.
Forward-thinking businesses will adopt a hybrid strategy. They will use VRPs where they offer the most value — such as for high-value recurring bills, variable subscriptions, or customers who prefer paying directly from their bank. Simultaneously, they will retain cards for one-off purchases or international clients, and Direct Debit for older demographics who may be resistant to digital banking apps.
The role of payment partners will shift from simple processing to intelligent routing. The most successful merchants will be those who can dynamically present the right payment method to the right customer at the right time. For example, a customer with a history of failed Direct Debits might be nudged towards setting up a VRP for greater reliability.
Conclusion
Variable Recurring Payments represent a maturing of the Open Banking promise. They move us beyond data aggregation and simple transfers into the realm of complex, automated financial relationships.
For the financial services industry, VRPs offer a rare "win-win-win":
- For the Merchant: Lower costs, instant settlement, and reduced churn.
- For the Customer: Greater control, transparency, and a seamless mobile-first experience.
- For the Economy: A more efficient, secure, and competitive payments ecosystem.
As pilot programs expand and commercial frameworks solidify, we expect VRPs to become a standard component of the payments mix within the next three to five years. The businesses that begin experimenting with and integrating this technology today will be the ones best positioned to capitalise on the efficiencies of tomorrow.
About Acquired.com
Acquired.com enables businesses to increase payment success, reduce failed transactions, and optimise every payment. The company helps organisations maximise and protect recurring revenue by providing full control over payment performance. Its unified platform and API consolidate all major payment methods, intelligently matching customers to the most effective option while proactively reducing failures through real-time optimisation, post-payment recovery, actionable insights, and expert hands-on support.
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Ready to future-proof your payment strategy? Whether you are looking to integrate VRPs, optimise your current collections, or explore a multi-method approach, our team is here to help.
Email: support@acquired.com
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