Variable Recurring Payment Q&A with GoCardless and Plum

We are now less than four months away from the CMA’s mandated Variable Recurring Payments (VRPs) for sweeping deadline in the UK. To better help businesses understand and prepare for the changes likely to come into play later this year, GoCardless hosted the webinar ‘Unlocking the Power of Variable Recurring Payments’ alongside guest speakers from Accenture and Plum. The full webinar is now available to watch on-demand here.

In case you’re unfamiliar with the term VRP, here’s a quick overview:

At the moment, VRPs don’t technically exist. However, the UK’s top nine banks are in the process of enabling them for sweeping use cases - which refers to the moving of money between two accounts belonging to the same person. VRPs will be functionally similar to Direct Debit in that they enable recurring payments and you will also be able to vary the payment amount being collected. The key difference is that with VRPs you will get instant payment authorisation, which also adds an extra layer of security as payer accounts are authenticated before the first payment. You can read our VRP explainer blog to deep dive into the details of VRPs.

There’s a lot of enthusiasm and excitement around the potential of VRPs with many people (us included) predicting that once sweeping use cases are set up, banks will begin rolling out wider ways to utilise VRPs. That said, sweeping is still a notable first step that will enable users to have better control over their savings and investments. Money management app Plum’s Head of Operations, Elise Nunn, shared with us that they are already planning on how they can incorporate VRPs into their payments strategy, saying: “VRPs will allow us to both process payments instantly and vary the amount customers invest in line with their financial situation at any given moment – all part of continuing to be a responsive wealth creation partner for them.”

Elise also joined us as one of our webinar guest speakers alongside GoCardless’ Director of Product Marketing, Siamac Rezaiezadeh. We received lots of interesting attendee questions during the session, and both Elise and Siamac have taken the time to respond to those we were unable to answer live.

Variable Recurring Payments (VRPs) Q&A

Will VRPs be similar to Direct Debit in that the merchant can pull the money rather than the customer having to push the money?

Siamac: Yes, from a practical perspective it helps to think of VRPs as being "like Direct Debit when speed and security matter most". The payer will set up an authorisation within their bank account which an approved merchant can trigger automatic payments against, just as they would for Direct Debit.

Will monthly premium payments for insurance come under the "sweeping" definition?

Siamac: The CMA’s definition of what qualified as sweeping is quite broad, however at the moment premium payment for insurance does not fall within the scope. Whilst sweeping will the first iteration of VRPs in the UK, broader use cases are predicted to come into place not long after, with card-on-file e-commerce use cases being the most likely space to start gaining a foothold. 

If VRPs replace Direct Debit, will customers be offered the same level of protection that Direct Debit offers?

Elise: I would argue that the customer protection given by the authorisation/SCA/consent process when setting up a VRP is even more robust than current Direct Debit mandates.

Siamac: There's a little nuance to this answer. First of all, VRPs are unlikely to replace Direct Debit in the medium term. It’s important to bear in mind that Direct Debit in the UK has a high user preference, offers ease of use and brand equity, as well as well-established consumer protections. These factors combined mean that in a decent number of use cases businesses simply won't see the upside of VRPs initially (especially when you add cost into the equation). Instead, VRPs and Direct Debit will harmoniously co-exist and serve a particular purpose. 

To Elise's point, the authentication level of VRPs makes them inherently more secure, so the need for extra protection is lower. That said, there are no explicitly mandated consumer protections currently in place.

How long does a VRP take to clear?

Elise: I believe it is similar to instant single payments offered by open banking, which is just a matter of seconds.

Siamac: The payment authorisation and settlement/clearing side are all instant - think seconds, not minutes. However, your setup with a payment provider will define how quickly that money is received into your bank account. There is substantial value in knowing a payment has cleared regardless of whether it has been received into your bank account.

Can you point to any other markets that have successfully transitioned payers from more mainstream payments, such as cards, towards account to account methods like VRP?

Elise: One thing to point out here is that we have already had one such transition within the UK: customers using payment initiation for single payments. At Plum, customers used to push single transfers of money (when they wanted to invest a lump sum of money into a fund for example) into Plum through their direct debit mandate. Now through using GoCardless, we have added instant single payments powered by open banking and these make up the vast majority of single payments, not Direct Debit. 30% of all payments on Plum are already using open banking - the power of speedy money movement is just huge.

Siamac: Elise makes a great point about the UK, and how Plum uses Instant Bank Pay in particular! I would add one other larger market use case. In the Netherlands today, close to 50% of e-commerce transactions take place via iDEAL, an account-to-account payment system. This is huge when you consider how cards are the de facto payment method for e-commerce use cases in lots of other markets. It speaks volumes of the generational shift coming up when there are viable alternatives.

How would you summarise the features and limitations of VRP?

Elise: The big pros are the ability to move recurring amounts of money recurrently where the customer can see their money arrive at its destination in a matter of seconds. The fact that the money does not remain pending or un-withdrawable for a very, very tiny amount of time is a huge win for customer trust, which in turn impacts churn positively. 

A cons is of course the cost is higher, but this is also on a company to decide how to incorporate that cost into the product.

Siamac: "Like Direct Debit, but when speed and security matter" - it’s such a strong value statement that it bears repeating! The limitations will be based on availability on the banking side and, ultimately, cost compared to more established mechanisms like Direct Debit.

Stay up to date with VRP progress

If you’re still curious about VRPs and how you’ll be able to leverage them once available, you can also read our blog specifically delving into VRPs and sweeping. Don’t forget, you can also still watch our full webinar, Unlocking the Power of Variable Recurring Payments, on-demand.

You can also now find out more about GoCardless' VRP offering: Instant Bank Pay for recurring payments here.