UK set to extend variable recurring payments beyond 'me to me' use cases

The UK Payment Systems Regulator (PSR) plans to enable variable recurring payments (VRPs) for payments between different account holders in certain low-risk scenarios.

The PSR published a consultation paper, "Expanding variable recurring payments", in December 2023 that laid out its plans to scale up VRPs by enabling payments in low-risk scenarios between accounts in different names (known as "non-sweeping VRPs". The scenarios in scope – which are in part limited due to pre-existing consumer protections and sectoral regulation – are payments to regulated financial services providers, regulated utilities providers, and local and central government.

This proposed expansion, which constitutes the first phase of the rollout of non-sweeping VRPs, is a next step towards expanding VRPs to full account-to-account retail payments.

What are VRPs?

VRPs are payment instructions using open banking functionality, which allow customers to connect payment initiation service providers to their payment account(s) to make recurring payments on the customer's behalf. As VRPs form part of a payment initiation service, the payments require express customer consent but can occur in flexible intervals and can vary in amount within pre-agreed parameters.

Currently, VRPs can be used to make payments between accounts belonging to the same person (a practice called "sweeping"). The Competition and Markets Authority (CMA) mandated the biggest nine UK banks, known as the CMA9, to implement sweeping, with no obligation on account operators (also known as "sending firms") to enable VRPs between accounts in different names.

VRPs provide a function similar to that of direct debit or standing order and can offer benefits to consumers such as greater transparency and control over their payments, as firms must provide accessible dashboards, clearly set out the scope of the payment parameters and functionality to grant time-limited permissions.

Given the current mandated scope for sweeping – which in practice largely amounts to transferring funds between a customer's current and savings account – extending VRPs to enable payments to third parties could well lead to increased uptake, particularly if linked to additional services such as providing spending data. 

What is the PSR proposing?

Sending firms will be able to charge for access beyond the existing open banking regulatory requirements. In order to support the phase one rollout, the PSR proposes:

• A multilateral agreement (MLA) that specifies the required functionality, and arrangements for pricing, dispute resolution, and liability;.
• Using its powers to set the parameters for a central price for VRPs and removing the Faster Payments Service (FPS) charge during the initial rollout for sending firms.
• Setting at zero the price that sending firms can charge payment-initiation service providers for access to customer accounts and payment initiation, if the regulator determines the FPS charge to be the only relevant incremental cost for sending firms for the initial rollout.
• Mandating the participation of the CMA9 in the MLA.

What's next?

The PSR's consultation was only open for a short while, between 18 December 2023 and 2 February 2024.

The regulator will provide updated policy proposals for further consultation in the second quarter of  2024, giving stakeholders another opportunity to comment on the commercial model for VRPs.

Phase one of the rollout is currently proposed for the third quarter of 2024.

Osborne Clarke comment

The introduction of non-sweeping VRPs will offer consumers increased flexibility in managing payments, greater transparency and improved opportunities to manage their finances. In the long run, this is likely to be a positive development for the payments ecosystem, giving greater choice and potentially reducing payment costs. In particular, the roll out of VRPs to enable payments even to a limited scope of third parties will unlock further opportunities for payment initiation service providers to demonstrate that open banking providers can offer a genuine alternative to more traditional payments methods.

Firms providing payment initiation services may therefore wish to consider the impact of non-sweeping VRPs on their business models.

However, given the current proposals' limited financial incentives, sending firms may not have much appetite to invest in VRPs beyond the minimum prescribed requirements or promote to VRPs actively in phase one of the rollout. It remains to be seen how non-sweeping VRPs will be taken up by the public.

If you would like to discuss VRPs and how they could be used within your business, please contact our experts.

Sheila Bamugemereire, a Trainee Solicitor with Osborne Clarke, contributed to this Insight.