Variable recurring payments | Everything you need to know
Ever heard of Variable Recurring Payments (VRPs) and wondered what all the fuss is all about? We’re not just talking about recurring payments that are flexible, we’re talking about the new VRP method within open banking.
Stick around and we’ll fill you in!
What are variable recurring payments?
Within open banking, VRPs harness the power to connect a customer’s bank with third parties via payment initiation service providers (PISP). The series of payments can be set up to be taken and adjusted automatically by the providers on the customer’s behalf, leveraging real-time data exchanges between banks and third-party services. Imagine a payment that understands and adapts to your financial behavior—VRPs make that a reality!
Variable recurring payment use cases in open banking
- Financial management apps: VRPs can automatically adjust savings, investments or debt repayments based on real-time bank data.
- Budgeting tools: Customers can set monthly spending limits – VRPs ensure that funds are allocated and spent according to a budget, adjusting as their financial situation evolves.
- Integrated services: VRPs can integrate with multiple financial platforms. For instance, a banking app can be used alongside a stock trading platform; VRPs can manage funds across both seamlessly.
Is the VRP system secure?
Absolutely! One of the benefits of open banking is that it prioritises security, with robust protocols ensuring data privacy and transaction integrity. VRPs built on this foundation offer encrypted, authenticated and transparent transactions, ensuring utmost security for both merchants and consumers.
Also, the most important thing to remember when it comes to open banking is the consumer has to provide consent before any data can be shared with third-parties!
VRPs vs Direct Debits
| Aspect | Variable Recurring Payments | Direct Debits |
| Insights & analytics | Provides merchants with insights into customer spending patterns and financial behaviours. | Limited to transaction amounts and dates, with less detailed insights. |
| Integration | Seamlessly integrates with multiple financial platforms and third-party services. | Primarily linked to specific bank accounts, with limited third-party integration. |
| Flexibility | Offers flexibility in transaction amounts and frequency based on real-time data. | Fixed schedules and amounts, often requiring manual changes for adjustments. |
| Automation | Automated adjustments without the need for manual intervention. | Requires setup and occasional manual oversight. |
Will VRPs be the death of Direct Debits?
VRPs offer a lot of advantages, the most notable being a real-time transaction. By using the Faster Payment service, it’s speed and convenience is much more customer-centric. But does that mean it will take over from Direct Debits? Not necessarily.
Both systems have their strengths and serve different needs. It can also take time for banks and payment providers to implement new methods, as well as for consumers to trust and adopt them too. However, as technology evolves and businesses seek more flexibility and efficiency, we can expect VRPs to play a more significant role in the payments landscape.
Variable Recurring Payments are reshaping the way we think about recurring transactions and is definitely an innovation we’ll be keeping an eye on. For merchants, embracing this technology can lead to increased flexibility, improved customer satisfaction and streamlined operations. As always, stay informed, stay secure and keep innovating!
