Next steps for Variable Recurring Payments (VRPs) in the UK

• The Payment Systems Regulator (PSR) has published an updated view on how to encourage the growth of Variable Recurring Payments (VRPs) in the UK.

• Whilst final decisions have been delayed until the autumn, regulated financial services, regulated utilities and Government organisations continue to be the focus areas for the initial ‘Phase 1’ roll-out of commercial VRPs.

• Regulatory action remains likely to ensure that banks support VRPs. However, the PSR has softened its stance towards allowing banks to charge payments providers like GoCardless. We support this approach in principle and will work with the PSR and industry to establish an appropriate pricing model.

• A new National Payments Vision is due to be published in the coming months. This will be another important opportunity for ensuring that Government, regulators and industry are aligned on the goal of making bank payments, including VRPs, a genuine competitor to cards.

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Earlier this year, GoCardless responded to a regulatory consultation on VRPs. VRPs are only available for sweeping money from one account to another owned by the same person at the moment. The consultation outlined proposals for expanding VRP functionality so that people can use them to make payments to merchants for a good or service, which GoCardless and our UK customers are keen to see materialise.

The PSR has now digested the market’s feedback and published its revised thinking.

Regulatory uncertainty continues

Disappointingly, the PSR did not close the book on the VRP debate by providing a final policy position. The initial (or ‘Phase 1’) target sectors - regulated financial services, regulated utilities and local and central government - remain as they were, but on all other points, the PSR considers that more analysis and engagement with industry is required. They will publish refined proposals in the autumn.

We would have welcomed more clarity and urgency from the regulator. Banks, fintechs and businesses across the country need certainty before they can make the investments required to successfully roll out VRPs. We hope that timelines don’t slip any further so that customers can benefit from commercial VRPs in early 2025.

But positive movement on pricing

Despite the delay in timings, the substance of the PSR’s latest thinking was good news for VRP advocates.

Originally, the PSR was proposing to force the largest retail banks to support VRPs whilst preventing them from charging payment providers for accessing the application programming interfaces (APIs) they supply.

In reality, most people in the UK already have a current account with a bank that provides a basic sweeping VRP API. The technical work required to expand this functionality so that customers can make a recurring payment to a business is not a significant burden, but we know that some banks would nonetheless choose to prioritise other projects in the near term. Consequently, businesses would only be able to set up VRPs with customers of those forward-thinking banks, greatly limiting their usefulness.

We believe that a regulatory intervention that balances stick and carrot is likely to be required - one that ensures banks build the necessary infrastructure whilst rewarding them for supporting innovation. Allowing banks to charge payment providers like GoCardless will encourage a commercial mindset to create the foundation stones that a VRP market can be built on.

The amount that banks should be able to charge is a complex question. The PSR has confirmed it will explore different options for setting a central price and outline its reasoning and evidence in the autumn. It will also provide more detail on how the industry should work together and coordinate the expansion of VRPs. We look forward to contributing to this process over the coming months.

A National Payments Vision that prioritises bank payments?

Government and the regulators will get another shot at securing industry alignment around open banking objectives soon. City Minister Tulip Siddiq recently confirmed that a National Payments Vision will be published “in the coming months”.

We know that British businesses want a way of taking payments from customers that are cheaper, faster and more secure than cards, which dominate the UK retail payments market. That’s why we’re asking the Government to put bank payments, including those powered by open banking, at the heart of the Vision.

Some tough decisions are required to truly unleash open banking’s potential in the UK but, like in any business, having everyone clear on the goal and the deadline for achieving it is an important step.