Variable Recurring Payments (VRPs)– the one to watch in 2025.
Last December, whilst organising the Christmas party an email landed in my inbox that raised some alarm bells at Refractis HQ. It was a request to pay the venue deposit – nothing worrying so far… but instead of providing an invoice link, or bank transfer details the venue was using an outdated payment method – ‘card on file’.
For a ‘card on file’ payment the customer must provide the vendor with all their card details including card number, expiry date, address, postcode and the 3-digit CVS code on the back of the card, the vendor saves this information and completes a card payment at a later date. Willingly providing all the information needed to allow a fraudulent transaction feels risky and businesses are understandably trying to move away from this payment method, but for now it remain because it offers a degree of flexibility that other payment methods like direct debits, don’t.
The regulator challenged the industry to solve this problem by coming up with a new payment method rooted in open banking, to increase competition amongst payment provider and to support vendors to move away from less secure payment types.
Variable Recurring Payments (VRPs) were launched and the Competition and Markets Authority mandated use of VRPs for sweeping (me to me payments) for the 9 largest banks in the UK (the CMA9) back in 2022. Since then, they have been being used in the background without the consumer noticing.
VRPs at a glance
VRPs offer incremental improvements for businesses and consumers across the payment journey,
Improved Cash Flow – They’re real time. Whilst being most similar in functionality, to a direct debit, unlike that method they settle immediately
Improved Consumer Security - The underlying technology is APIs, this allows the VRP to be authenticated without the consumer sharing their sort code, account number or address.
Flexibility – Direct debits have a fixed amount, on a fixed payment cycle, and can only be changed through reauthentication by the consumer. A VRP, on the other hand, allows the consumer to define a maximum acceptable frequency (i.e. make this payment no more than once a month) and whilst those conditions are met reauthentication is not required – zero touch payments. This functionality has the potential to be combined with conditional contracts that would allow further customisation – consider a monthly gym payment offered by your health insurance provider, the provider rewards you with a lower monthly cost the more than you visit the gym and your payment changes seamlessly.
My prediction for 2025 is a wave of VRP backed fintech products hitting the market, solving real consumer challenges. Scouring the literature, the options appear endless but from a personal perspective I back tax planning - imagine a world where an annual tax bill is no longer a nasty surprise but through a combination of smart contracts, VRPS and some clever software, money is set aside, without intervention ready to clear the debt in January.
Money Live 2025
On March 10th and 11th Refractis will be at Money Live where we’re hoping to have some interesting conversations on this topic. What are your predictions for the payments space in 2025? Come and see us on our stand to discuss, or head over to a fireside chat to hear one of our founders discussing his views on the best approach to cloud migrations for the Financial Services industry.
Look forward to seeing you there!