Andrew Boyajian, Head of Variable Recurring Payments at Tink, shares his thoughts on the role of VRPs and why they can be a pivotal tool in navigating economic turbulence.

Although the economy remains in a difficult place, some people might say that things are gradually starting to improve. The UK seems to have narrowly dodged a recession and inflation has remained below double digits for the second consecutive month since the cost-of-living crisis began.

However, new data from the FCA has revealed that 10.9 million people struggled to pay their bills and meet credit payments in January 2023 – up from 7.8 million in May 2022. Tink’s recent research came to a similar stark conclusion, finding that an estimated 25 million Brits (46%) are ‘only just managing’ to scrape by financially, fearing their income soon won’t cover their essential spending. 

Finding ways to financially support consumers is more crucial than ever before, and fintech developments, such as open banking-powered Variable Recurring Payments (VRPs), is an unassuming method of providing people with greater control of their outgoing payments.

VRPs – what’s under the hood?

Consumers are trying to better spend and understand their finances, especially during the current cost-of living crisis, when we know that more people are struggling to make ends meet. VRPs provide a perfect lens for them to do so. 

Powered by open banking technology, VRPs are a new way to accept recurring payments and transfer funds quickly and securely in the UK.

VRPs provide financial control to an end customer. From their banking app, consumers have greater visibility of their monthly outgoings, as well as greater flexibility over when and how often a recurring payment will occur. For example, with VRP customers can set a maximum value on a recurring payment, which allows consumers to create smart rules to avoid overdraft fees or maximise savings. Another benefit is that consumers only need to provide authentication once to make multiple transfers.

Using payment solutions to bolster financial management

VRPs can be used in two different ways, for sweeping and commercial use cases.

The rollout of VRPs for sweeping (payments between a consumer’s personal accounts) and its adoption is well underway in the UK. Sweeping VRPs let consumers and businesses move funds between their own accounts on an automated basis, with the funds settled in seconds.  As the transactions take place in real-time, it offers greater control and visibility over outgoing payments, helping consumers oversee their finances more efficiently.  Banks and financial management apps that unlock this feature and others like it will help protect their customers and generate long-term loyalty.

Another development in this space is commercial, or non-sweeping, VRPs, which are transforming the way people manage their regular outgoings, as they solve for any kind of fixed or variable recurring payment (beyond personal account transfers), such as a streaming subscription or paying utility bills. 

Commercial VRPs enable users to review and change, or even cancel any subscription in a few clicks through their bank app, ensuring maximum transparency and control for consumers. This is crucial for improving financial health, e.g. by avoiding ‘set and forget’ subscription traps. This will help vulnerable consumers avoid overdraft fees and cancelled payments amid the current economic crisis.

A industry development snapshot 

Encouragingly, nearly all of the largest banks in the UK are in the process of offering sweeping VRPs, with HSBC being one of the first to announce its intention in August last year. 

However for VRPs to fulfil their game-changing potential, the industry needs to enable the capabilities of commercial VRPs as a better alternative to bank transfers. Commercial VRPs will expand the scope of potential use cases, including things such as bill payments or ‘bank-on-file payments’ for services where users make repeat purchases. 

NatWest made its first non-sweeping VRP in May 2022, and in November 2022 we launched our partnership beta launch of Variable Recurring Payments for commercial use cases in the UK. However, more needs to be done to help overcome lingering reluctance or resistance, and put Commercial VRPs at the heart of the payments industry of the future.

In the current challenging economic climate, unlocking new ways to help consumers manage their finances should be at the top of the industry’s agenda – particularly now as people look to navigate the associated financial impact that rising interest rates may bring. 
However, the power and potential of VRPs, particularly commercial VRPs, goes beyond the cost-of-living crisis. This has also been recognised by JROC (Joint Regulatory Oversight Committee) who oversee the planning and preparation for the future open banking entity, who in their recent report argued that VRPs have the ability to transform the payment experience for consumers and businesses alike.