Variable Recurring Payments: The Future of Dynamic Payments in South Africa and Beyond

The payments landscape is undergoing a seismic shift, and Variable Recurring Payments ( (hereon referred to as VRPs) are at the forefront. Unlike fixed recurring payments, where consumers are charged the same amount at regular intervals (think subscriptions or gym memberships), VRPs introduce flexibility, allowing payments to vary based on real-time factors like usage, capped limits, or predefined rules.

Globally, VRPs are already making waves in markets like the UK and Brazil, and their potential is enormous. By leveraging open banking frameworks, they promise benefits like increased transparency, reduced costs, and improved customer experiences. But how could this innovation impact South Africa, a country where financial inclusion and trust in payment systems remain critical challenges?

How VRPs Work: Sweeping vs Non-Sweeping Use Cases

At their core, VRPs use open banking APIs to facilitate payments directly between accounts. Unlike traditional direct debits or fixed recurring payments, VRPs allow for dynamic, customer-controlled payments.

Sweeping VRPs

Sweeping refers to automated transfers between a customer’s own accounts. Here's a few examples of how

• Transferring funds from a savings account to a current account to avoid overdraft fees.
• Moving excess funds into a high-interest savings account to maximise returns.

Sweeping VRPs are designed for personal financial management and operate without direct involvement from third-party merchants. They are already live in markets like the UK, where banks like NatWest and HSBC offer sweeping functionality to help customers optimise their finances.

Non-Sweeping VRPs

Non-sweeping VRPs involve payments to third-party providers, such as merchants or service providers. These payments are dynamic, allowing merchants to debit varying amounts within the agreed parameters set by the consumer.

Here's a few examples of how:

• A utility company bills a customer based on actual electricity usage, ensuring fairness and transparency.
• A ride-hailing app charges customers dynamically based on ride distance or demand surges.

Non-sweeping VRPs require explicit consumer consent, including limits on frequency and amount. This ensures users maintain full control and transparency over their finances.

Both sweeping and non-sweeping VRPs are built on open banking’s secure API infrastructure, which eliminates the need for card details and ensures transactions are authorised through robust authentication methods.

Why VRPs Matter Globally

For Consumers:

• Transparency: Consumers pay only for what they use. For instance, utility bills based on actual consumption rather than estimated amounts eliminate overpayments.
• Flexibility and control: Users can set limits and track payments through their banking apps, ensuring greater oversight.
• Security: VRPs operate through bank-grade authentication and secure APIs, significantly reducing fraud risk compared to card payments.

For Merchants:

• Lower costs: Merchants in the UK report savings of up to 0.3% per transaction, a game-changer for high-volume industries.
• Improved cash flow: With fewer failed payments, merchants enjoy predictable revenue streams.
• Retention and loyalty: Offering flexible, usage-based billing models attracts and retains more customers.

The Potential for VRPs in South Africa

South Africa presents a unique landscape for VRPs to thrive. Here’s why:

(a) Enhancing Financial Inclusion

Bresendale says according to reports, the current number of South Africans who are unbanked (those without bank accounts) or underbanked (those with bank accounts but who rely on cash or non-formal financial institutions) is reportedly 11 million – which constitutes 18% of the population. VRPs could bridge the gap by enabling flexible payment models. Services like prepaid electricity or pay-as-you-go mobile plans could be seamlessly integrated with VRPs, allowing consumers to manage payments through basic digital banking tools.

(b) Addressing Utility and Service Payment Challenges

Late or missed payments for utilities like water and electricity are a common issue. VRPs could:

• Allow customers to make payments based on real-time usage, avoiding hefty arrears.
• Automate balance top-ups for prepaid meters, ensuring uninterrupted service.

For municipalities, this could mean more consistent revenue collection and reduced administrative overheads.

Imagine Olwethu, a small business owner in a rural area, using VRPs to manage her finances:

• She pays her electricity bill based on daily usage, avoiding arrears.
• Her child’s school fees are dynamically adjusted each month based on attendance or activities, ensuring transparency.
• She subscribes to an agricultural advisory service, paying only during the planting season when she needs it most.

(c) Supporting SMEs and Entrepreneurs

Small businesses often struggle with cash flow and customer retention. With VRPs:

• Merchants could offer flexible payment terms, such as installment plans or dynamic billing for services like internet usage or gym memberships.
• SMEs could manage customer payments more effectively, improving cash flow predictability and reducing payment defaults.

For a merchant like Sipho, who runs a small gym in Johannesburg, VRPs could:

• Automate membership payments, allowing customers to pause or adjust plans during holidays.
• Reduce administrative tasks associated with chasing late payments.
• Increase retention by offering flexibility, attracting customers who prefer pay-as-you-go models.

(d) Empowering the Gig Economy

In South Africa’s growing gig economy, VRPs could enable workers to manage income fluctuations. For example:

• A ride-hailing driver using a rent-to-own vehicle model could make payments dynamically based on their weekly earnings, reducing financial stress during low-income periods.

Predictions for VRP Growth

As open banking adoption accelerates in South Africa, VRPs could become a cornerstone of the payments ecosystem. Key drivers include:

• Consumer trust: Building awareness around the transparency and control VRPs offer.
• Regulatory support: Ensuring clear guidelines for API integration and consumer protection.
• Collaboration: Encouraging partnerships between banks, fintechs, and merchants to scale adoption.

Globally, the VRP market is expected to grow in parallel with open banking’s projected economic impact of $116 billion by 2026. For South Africa, this could translate into more inclusive financial systems and innovative payment models that meet local needs.

Final Thoughts: A Turning Point for Payments

Variable Recurring Payments represent more than a technical innovation—they signal a shift toward more equitable, user-centric financial systems. For South Africa, the opportunity is particularly significant. By addressing local challenges like financial exclusion, cash flow issues, and payment inefficiencies, VRPs could reshape how consumers and businesses interact with money.