Accelerating the Arrival of Commercial VRPs

• An industry multilateral agreement (MLA) is essential for supporting the successful rollout of commercial variable recurring payments (VRPs).

• Recognising that certain elements could be negotiated while regulatory clarity is forthcoming, GoCardless collaborated with UK Finance, law firm Addleshaw Goddard and a select group of industry peers to create a stepping stone to a VRP MLA - a set of model clauses for using in contracts between banks and payment initiation service providers (PISPs).

• The model clauses are intended to complement and support the regulatory driven process. They are freely available to all market participants and should reduce contractual transaction costs, saving time and providing customers with more consistency and protection.

Why commercial VRPs need an MLA

At the end of last year, the Joint Regulatory Oversight Committee (JROC) identified the need for a multilateral agreement (MLA) for VRPs. This would provide clarity on technical issues such as functionality parameters, market participant roles and responsibilities, and arrangements such as pricing, dispute resolution and liability.

This was echoed in the Payment Systems Regulators’ (PSR) consultation paper on extending VRPs to a select group of ‘low risk’ use cases as part of a Phase 1 roll-out. In our response, GoCardless set out what we believe to be the conditions and requirements for delivering a sustainable commercial VRP ecosystem, focusing on the need for adequate bank coverage and financial incentives for all market participants. However, while we await the PSR’s final policy position, a small group of industry players have been working together to remove barriers further along the pathway.

The Model Clauses project

UK Finance formed the VRP Model Clauses Working Group — comprising of 12 members from banks and third-party providers (TPPs), including GoCardless — to create a set of standard VRP contract clauses. These could then be easily inserted into bilateral agreements between an account servicing payment service provider (ASPSP, usually a bank) and third-party provider (TPP such as GoCardless), reducing contract transaction costs. They would also provide commercial VRP ecosystem participants, including merchants (i.e. our customers) and payers, with greater confidence, consistency and protection.

The working group’s activity was conducted under the guidance of a law firm, Addleshaw Goddard, with strict rules and mitigation processes for managing competition risk.

Open to use and a foundation to build from

The model clauses are intended to be complementary to the regulatory activity that will determine when and how commercial VRPs can be used in the UK. They are open and optional to the market but our hope is that they will inspire confidence and encourage new entrants to the market, bolstering competition. They are freely available on the UK Finance website here.

The final report proposes 11 model clauses, dealing with the key sticking points for commercial VRP contracts from a process and technological viewpoint. These are:

• contracting models

• information disclosures

• agreeing mandate parameters

• setting mandate parameters reasonably and proportionally

• pre-notification of commercial VRP

• disputes handling

• biller onboarding, monitoring and information

• co-operation

• high-risk use cases

• adherence to commercial VRP standards

• API change management procedure

Summary

A thriving payments ecosystem relies on the existence of a competitive landscape in which multiple payment options are available. That goal will only be reached if industry participants rally around a common goal and collaborate.

We at GoCardless were proud to contribute to the Model Clause Project and hope that the final report goes some way to unlocking the full potential of open banking payments. In the meantime, we’re eagerly awaiting a green light from the PSR to start providing our customers with commercial VRP solutions.