Following the Competition and Markets Authority’s mandate that the UK’s nine largest banks must support sweeping by 31st July 2022, both Plaid and GoCardless have launched a Variable Recurring Payments offering today.
GoCardless and Plaid can now support the automatic transfer of money between two accounts belonging to the same person via open banking, otherwise known as ‘sweeping’, allowing developers and financial service providers to prepare for VRPs as the deadline approaches.
For GoCardless’ ‘Instant Bank Pay’ feature, developer docs are live, and a sandbox will be unveiled in the coming weeks for merchants to test their VRP readiness. GoCardless has been active in the VRP arena since 2019, when it took the first live transaction through a sandbox developed by the OBIE.
In June 2022, GoCardless was also chosen by NatWest to provide VRPs as a new payment option for businesses and consumers, alongside launching a ‘non-sweeping’ VRP pilot with NatWest and Charity Right.
The launch of recurring payments for Instant Bank Pay means GoCardless will enable multiple companies in the financial sector, such as Pillar - GoCardless’ latest early adopter and a new fintech platform breaking down credit borders - to use VRPs to provide instant, account-to-account payments.
Pillar is also developing a new platform which will provide immigrants with access to credit products when moving to a new country. By offering VRPs as part of its functionality, Pillar will provide customers greater control over their finances as they will be able to make and cancel recurring payments instantly.
Further, VRPs enable them to authenticate recurring payments with a single click, eliminating the need to re-authenticate or re-authorise every transaction.
Duncan Barrigan, chief product officer and chief growth officer, at GoCardless, said: “We’re delighted to launch Instant Bank Pay for recurring payments, giving merchants a head start on VRPs as banks begin their rollout. We’ve now had hundreds of conversations with businesses across the country and what stands out again and again is their enthusiasm for VRPs -- especially that moment when they realise how this new technology can unlock their future growth plans. We’re proud to power the payments for these innovative companies so they can get on with what they do best: shaking up the status quo.
“A great example is Pillar, with its mission to break down credit borders and unlock access to financial products around the world. By tapping into our unique combination of Direct Debit and VRP, Pillar can customise its payment strategy and take advantage of all the benefits of direct bank payments, from lower fees to greater reliability.”
The CMA has mandated VRP for use cases where money is automatically moved between bank accounts held in one person’s name. For example, moving excess funds from a low-interest current account to a high-interest savings account or topping up a current account with a low balance to avoid hefty overdraft fees. As part of the current mandate, banks must also allow open banking companies like Plaid to access APIs for sweeping at no cost.
Today, Plaid also released a new VRP product to enable people in the UK to make recurring transfers between their accounts in the future, with one authorisation via open banking.
Payments app Expensify, among the first customers for Plaid’s VRP product, helps individuals and businesses asimplify the way they manage money. Further, Expensify can automatically pull varying repayments from their customers’ business accounts to settle card balances.
However, beyond sweeping, VRP has the potential for a wider set of potential use cases such as managing active subscriptions or paying utility bills. Recent Plaid research found that if VRP is extended beyond the current mandated sweeping use cases and their low cost is protected, UK businesses could save as much as £1.5 billion in processing fees.
Plaid data finds that if policymakers were to cap issuer fees at ten basis points to protect their position as a competitive alternative payment method, this would keep fees for VRP slightly lower than card payments’ interchange fees, which are limited at 0.2% for debit cards and 0.3% for credit cards.
Dan Morgan, European policy lead at Plaid, said: "In just five years since its inception, Open Banking has helped to bring a tremendous amount of innovation in finance to the market. Commercial use cases for Variable Recurring Payments have the potential to revolutionise the way money moves between consumers and businesses. However, we need UK policymakers to step in and ensure that unfair pricing practices don't dampen adoption and prevent increased market competition. With their help, the industry can help consumers and businesses realise the full benefits of this new payments option.
Janine Hirt, CEO of Innovate Finance, added: “As households and small firms grapple with rising costs, further developments of open banking tools can provide solutions that help improve productivity and reduce costs. Commercial VRPs can offer these efficient solutions and have an important role to play for businesses when it comes to reducing transaction costs. In turn, this can also indirectly help lower costs for consumers which could be valuable as the cost-of-living rises.