What are Variable Recurring Payments?

‍

The ability to store a payment method with a merchant has become an expected experience for consumers to streamline purchases. Keeping a payment method on file with a merchant not only speeds up checkout when the consumer is present in a shopping experience but also enables purchases to happen when the customer is not present and the merchant initiates the payment, such as in a subscription or recurring payment. 

Many consumers use debit or credit cards as stored payment methods but technical advances and growing consumer adoption of open banking offers an alternative to cards. 

The past few years have shown the remarkable growth potential of Open Banking payments.

From 2022 to 2023 alone, total Open Banking payments grew by 102.4%, with the number of active payment users reaching 4.2 million. By July 2023, Open Banking payments had topped 11.4 million. 

Technological flexibility has proven to be a key driver of Open Banking payment adoption. Variable Recurring Payments (VRPs) take full advantage of this flexibility by facilitating frictionless consent between customers, financial institutions, and businesses.   

VRPs allow customers the freedom to authorize access to their bank accounts for specific payment scenarios, such as automatic monthly subscriptions. When integrated within your payment system, VRPs can significantly streamline and enhance the payment experience.  

The Value of Variable Recurring Payments for Your Business

Variable Recurring Payments are an extension of Open Banking technology, which allows customers to consent to sharing their financial data and credentials with third-party services. 

Operationally, VRPs can increase the efficiency of recurring payments. Thanks to the automated nature of Open Banking technology, VRPs reduce the risk of payment errors caused by manual processes. 

“VRPs offer value to customers to seamlessly manage subscriptions and recurring debits from their accounts. At the same time, open banking offers a trusted consumer option that is also a cost effective alternative to cards for merchants.” 

Andy McHale Spreedly’s Senior Director of Product and Market Strategy

With VRPs, your customers only need to authenticate their payment accounts once to engage with recurring payment solutions. VRPs can power a wide range of different payment services that require ongoing authorization to access a customer’s account, including: 

• Subscription entertainment services
• Investment and savings account top-ups
• Loan, utility, or insurance payments
• Gym memberships

What makes VRPs so appealing to customers is the ability to revoke consent at any time, making it far easier to manage their personal array of recurring payments. Upon initial authorization, strong customer authentication (SCA) processes are performed to ensure the customer’s consent is verified.   

Plus, VRPs come with instant settlement times, making them an all-around faster and more secure payment method to offer to customers. 

VRPs in the real world: The use case for simplifying repayments

VRPs allow your business the opportunity to attract new customers with advanced payment capabilities, like one-click payments and automatic money transfers. To best picture what this looks like in practice, let’s imagine a customer is working to pay off both lending and credit card debt.

Using VRPs, the customer can connect their various financial accounts and set up automatic payments to be made from accounts with positive balances. The customer can determine precisely when these payments should occur and the maximum amount that should be withdrawn for a specific payment.  

Additionally, the customer could use VRPs to enable one-click payments, allowing them to authorize credit card or loan payments with a single touch of a button. 

Enabling Sweeping with Variable Recurring Payments

Though Open Banking technologies certainly have global influence, much of this innovation still currently originates from the UK, a pioneer of Open Banking regulations and guidelines. 

In 2021, UK regulators at the Competition & Markets Authority (CMA) mandated VRPs as the official mechanism for implementing sweeping processes. Sweeping is the term used to describe our earlier discussed use case, wherein a customer authorizes automatic money transfers of surplus funds into either savings accounts or payment accounts. 

Sweeping and VRPs have come to operate hand-in-hand in many cases, enabling benefits such as:

• Overdraft prevention
• Automated repayments for loans and credit cards
• Simplified financial planning 
• Reduced late payments

By implementing VRPs, you can leverage sweeping processes to transfer funds automatically based on real-time account balances and other criteria predefined by the customer. 

VRPs allow customers to adjust the amount transferred in response to changes in account activity or financial goals, creating an adaptable financial approach that aligns a customer’s payment needs with their current financial circumstances. 

For example, if a customer experiences an unexpected financial emergency, the amount transferred from their accounts can be reduced. Meanwhile, during periods of low expenditure, larger amounts can be transferred when interest rates rise and customers stand to earn more. 

The ability to take advantage of variable rates allows for more complex financial strategies that operate via multiple sweeping permissions across different accounts. Customers can implement the optimal frequency of payments and fund transfers to improve their financial posture.

Implementing Variable Recurring Payments via an Open Payments Platform

While VRPs offer plenty of financial advantages to both your business and its customers, finding the right way to implement VRPs can be a different task altogether. 

Open Banking technologies require the right digital payment ecosystem to operate smoothly. Through the use of an open payments platform, you can access essential payment orchestration capabilities that make it simple to integrate new payment methods into your system — including VRPs. 

“An open payments platform offers the perfect environment to take advantage of benefits from open banking.”

• Andy McHale,  Spreedly’s Senior Director of Product and Market Strategy

Not only can open payments be the key to VRPs but these platforms also give you the freedom to connect any additional payment methods or payment service providers you may need to satisfy the needs of your customers and end-users. 

Take Advantage of Variable Recurring Payments with Spreedly

At Spreedly, our open payments platform offers the ideal environment for connecting to Open Banking technologies and implementing Variable Recurring Payments.

Our experienced team can assist you in establishing an optimized payment system where customers can easily and securely set up their authorization permissions. Moreover, your business can leverage VRPs as well to take advantage of variable rates and ensure timely payments to suppliers and vendors. 

Spreedly empowers businesses to utilize the payment methods and services that offer the greatest financial opportunities, whether that’s increasing savings or keeping up with payments. 

Speak with Spreedly today to find out how you can implement VRPs.

Download the Payments Orchestration eBook Below