Variable recurring payments (VRPs) are the most significant development in Open Banking to date. Why? Because they tackle one of its biggest challenges: the requirement for consent via Strong Customer Authentication (SCA) for every transaction.
VRP effectively delegates authentication to a third-party provider (TPP) like Volt, which then enables a single-click payment experience for trusted beneficiaries. This we expect to be seriously disruptive to the status quo.
VRP has thus far been mandated for sweeping use-cases only – this means transactions between two accounts in the same name. Importantly though, in building VRP for that sweeping use-case, the banks have created the infrastructure needed to support first-party to third-party transactions.
This will enable customers to use VRP for everything from subscriptions to in-app payments and for e-commerce more broadly. Card-on-file will be replaced by account-on-file; direct debits that are antiquated and with a difficult operating interface are at risk of being consigned to history.
How does it work?
VRP provides for a long-life consent token via three parameters: maximum number of transactions in a given period – month, for example – maximum value of any single transaction, and total aggregate value of all transactions in that period.
So if your weekly online groceries order never exceeds £200, that’s your maximum transaction value. Five times £200 is £1,000, so that’s your maximum number of transactions and their total aggregate value for the month. And if transactions stay within these limits, there’s no requirement for SCA.
What do customers stand to gain from VRP?
Aside from being faster and more secure, never again will customers be asked to update their credit or debit card information. Cards expire, bank accounts do not. VRP also offers customers more convenience, control and security.
While open payments may be in their relative infancy, we are seeing strong adoption and growth. VRP, and the benefits it brings, will only accelerate this.
What does VRP mean for merchants?
The benefits of VRP for merchants are plentiful: real-time settlements, lower costs, the elimination of card fraud, reduced customer churn and no chargebacks.
These and other benefits are being tested in earnest at the world’s first VRP Hackathon – for which Volt is a proud sponsor alongside Mastercard, Accenture and Worldpay. Hosted by Ozone API, Open Future World and UK Finance, the event is seeing more than 100 participants putting VRP through its paces and exploring use cases via a transactional sandbox.
Collaboration is crucial to realise VRPs’ full potential. As an industry, we’re working to bring VRP to market via a commercial or premium API model. For this to succeed there needs to be an agreement between TPPs and banks about what a commercial VRP model looks like, and that we are working to achieve.
‘The opportunity for banks to monetise Open Banking’
Banks have had to spend hundreds of millions of pounds delivering Open Banking and the requirements of PSD2, with no means to monetise it.
VRP can be the first opportunity for banks to monetise their Open Banking investment, and balance can be provided to the Open Banking ecosystem. This is hugely positive.
Ultimately, Open Banking is a handshake between banks and TPPs. It’s important, therefore, that these industry players continue to work together on initiatives that further the functionality set of Open Banking and the opportunities it presents.
VRP is one such model for this collaboration and represents a significant opportunity to bring a fairer distribution of value across the ecosystem. It’s this new partnership between the fintechs and banks that will level the playing field, as we work together to deliver on the full promise of real-time payments everywhere.
Tom Greenwood is the founder and CEO of Volt