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Financial services best for commercial VRPs adoption

Who is going to adopt commercial variable recurring payments (VRPs) is one of the most lucrative questions to help unlock the next chapter of open banking payments

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What is needed to bring open banking payments forward toward mass adoption?

The next wave of adoption of open banking payments would best come from the financial services sector.

That is the finding, AltFi can exclusively reveal, from new research from GoCardless, who examined how commercial Variable recurring payments (VRPs) might be rolled out.

Adherents argue that VRPs are the next big development in the open banking story, particularly where they are applied to wider businesses.

Regular VRPs, often dubbed 'sweeping' allow people to move money between various accounts -owned by one person - such as between a current account and a credit card.

However, the rollout of commercial VRPs promises to bring the same real-time settlement and low costs to the wider payments ecosystem. Replacing 'card-on-file' with 'bank-on-file'.

Making this happen is another story, with adoption the key question. Glacial change is challenging, while deeper more systemic change is needed for mass adoption.

GoCardless research, seen by AltFi, has found budding interest among financial services providers and insurance companies to be strongest.

These industries are relatively low-risk and are mostly already collecting recurring payments, but more importantly, benefit from faster and cheaper payment options.

Examples might include the likes of 'buy now, pay later' platforms, which could be huge beneficiaries.

This group had high adoption rates forecast over the next 18-24 months.

Charities, while not as strongly forecast to adopt VRPs as financial services, also scored highly owing to their existing reliance on recurring payments in the form of direct debits.

The research concludes with a three-step recommendation for the rollout of commercial VRPs.

1) Start with high-intent merchants already familiar with bank payments, such as financial insurance, and charities. 

2) Drive adoption among challenger brands within traditional industries where bank payments and cards are commonly used, such as challenger energy providers and telcos. 

3) Expand into sectors where cards are the dominant form of payment, for example in e-commerce, gaming and travel.

The research took place over the early summer of 2023 and examined a number of different payment verticals for the intention to adopt VRPs commercially. It included a review of the plans of hundreds of UK businesses regarding commercial VRPs over the next 18-24 months.

According to Open Banking Limited, open banking adoption has hit seven million active users, with eleven million monthly payments and the total monthly value of open banking payments equalling £4.5bn occurring. The Future of Payments review, also known as the Garner Review, which outlines the UK’s future payments strategy, was published last week alongside the Autumn Statement.

It stopped short of giving open banking providers the legislation they wished to see that would underpin a longer-term framework for open banking but did herald open banking as an important element within the future of payments in the UK.

“The Future of Payments Review echoes what we’ve been saying for years: high card fees are hurting our economy and businesses need an alternative way to accept payments. It’s encouraging to see Joe Garner identify open banking as the primary solution for resolving this pain point for merchants," Pat Phelan, MD of UK and Ireland and Chief Customer Officer at GoCardless said. “Through the work of the Joint Regulatory Oversight Committee (JROC), the UK has already been exploring the issues highlighted by the Report, which are fundamental to driving mass adoption: a great open banking user experience, consumer protection and the right incentives for everyone in the ecosystem," Phelan added.

Ben Ruffels, VP of Public Policy at Volt, says setting out an ambitious vision for the future of open banking and retail payments "would put wind in the sails of UK fintechs".

“To take real-time open banking payments to the next level, and turbocharge their adoption by merchants and their customers, we urgently need the UK’s Joint Regulatory Oversight Committee (JROC) to clarify how our open banking ecosystem will be overseen during the next phase of its evolution," he said.

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