VRPs - the next phase of open banking

Open Banking in the UK has been progressively building momentum in the four years since its launch. There are now over five million regular users, with 2021 seeing a 60% increase in new customers - making it Open Banking’s most significant growth period to date. 

But that hasn’t stopped murmurs from the sceptics. To quote one neobank boss, “customers are not influenced to switch banks because they can take their data with them”. On this point, I fully agree. I’ve never spoken to anyone who has done this. But customers do care about the innovations open banking can bring and the problems it can solve for them. The good news is that not only are there already compelling solutions powered by open banking today, as we know first-hand at GoCardless from the customer feedback on our Instant Bank Pay feature and how it combines with direct debit -- there are also more solutions appearing on the horizon with the arrival of Variable Recurring Payments (VRP).

Improving money management

The CMA’s VRP mandate currently only covers sweeping, which is the automated movement of funds for a customer between two accounts in their name - usually to help them avoid charges or benefit from better interest rates. I’ve said before that it is the use cases beyond sweeping that excite me the most, but that doesn’t mean we should just dismiss VRPs’ first iteration. Far from it. Starting with sweeping gives everyone, including the banks, the opportunity to test and improve the user experience before we get into much more complex recurring use cases. 

We’re still waiting for the definitive judgement on what will be covered by “sweeping”, but hopefully sweeping will also enable investment and money management apps to live up to their full potential. One analogy here is with the right to edit an online document. Currently, apps in the sector are limited to something close to “view-only mode” when it comes to open banking. Account Initiation Services (AIS) can be used to help people to understand their cash position, but taking action by moving money between accounts is either lagging, with direct debit, or requires action from the user to trigger a payment. This can’t compete fairly with in-house sweeping because it is unable to, for example, provide certainty that an account won’t be left overdrawn overnight without the user taking action. VRPs will move us to a true “edit mode”, finally levelling the playing field for alternative savings and money management products.

Vive la révolution

It’s great that we’re beginning to see open banking have a real impact in the UK, but the revolution is still only just getting started. Money management apps like Plum have already begun planning how to incorporate VRPs into their existing strategies. Plum’s Head of Operations, Elise Nunn, shared: “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.”

VRPs are also onboarding a new cohort of open banking stakeholders, with the top nine UK banks forming partnerships with Third-Party Providers (TPP) to build viable VRP API models. As the number of people with “skin in the game” grows, so does the likelihood that the next two years will continue to see exponential growth for open banking.