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Variable recurring payments (VRPs) are a recurring theme for UK payments players, and although they disagree on the best way forward, they agree that the Payment Systems Regulator (PSR) needs to get a move on.
During a panel at Open Banking Expo (OBE) last week, Kate Fitzgerald, head of policy at the PSR, confirmed that the regulator will be publishing something related to “the direction that everybody is asking for” on VRPs in the coming weeks.
“My one plea would be that once we have set out that direction, that everybody helps us and comes to the table to really help us move forward on some of these really difficult questions that we’re facing,” she said, referencing topics such as pricing and mandation – the latter of which she said is being considered by the regulator.
However, when it comes to VRPs, the general feeling in the industry at the moment appears to be one of burn-out – along with some bewilderment from overseas attendees.
When an EU lobbyist was asked about whether VRPs are the subject of much interest in Brussels, as they have become for the UK’s payments ecosystem, he simply replied “it’s not really a priority. Europe loves direct debits.”
Another EU source echoed this, saying “I don’t know why it's all some people want to talk about in the UK.”
Demand for action
At OBE, it was clear that patience was limited when it came to what was going to happen next for VRPs, with a feeling that the UK has stalled on where to go next and a sense that the PSR has had to focus too much on other areas – such as the roll-out of the authorised push payment (APP) fraud reimbursement scheme – to consider topics such as VRPs, despite their potential competition benefits for the UK payments ecosystem.
As things stand, the UK is in between phase 1 and phase 2 of the PSR’s roll-out of VRPs.
Phase 1 has seen VRPs extended to low-risk use cases such as local and central government, regulated utilities and regulated financial services, but limited progress has been made since.
“Phase 1 has been useful insofar as it provides a roadmap to get to phase 2,” said Ben Rattue, partnerships and propositions manager at Token.io.
He explained that this is because phase 1 has “low risk all over it” meaning it has not required the same levels of consumer protection as will be needed with phase 2, adding that phase 1 needs to be live “ASAP” in 2025.
Rattue said that there are signs that merchants want to “flip cards for VRP” as opposed to work on direct debits, which is problematic considering that phase 1 of the initiative “heavily indexes on direct debits”.
This could mean limited uptake from merchants, he suggested. “The risk of that in the context of this VRP roadmap is that if we sit there after phase 1 and say that we didn’t really see the uptake that we wanted, nor the benefits we thought it could deliver, actually we haven’t given it the best chance that it needed to succeed.”
“It is like signing Christiano Ronaldo, who is a striker, and putting him in defence,” he said. “You’ve provided the capability but you haven’t given him the best possible chance to succeed.”
His banking counterpart, Bhavna Saraf, head of payments products and propositions at Santander, also criticised the process so far for VRPs.
“There’s been much reticence, at least in terms of fatigue from talking about it constantly and there hasn’t been any timely action,” she said. “I think there is a finite time and quantum to every opportunity so timely action really becomes key for us to address the problems that we are trying to solve for.”
She pressed on the payments ecosystem to “move a little bit faster”.
Speaking from a banking perspective, she said that “we are willing to go with a form of solution, but I think we need to get out of the gates to put it into the market, to put it in the hands of the users and get the users to decide what are the bits they like and what they want to improve.”
Saraf added that although there are solutions out there that work, such as cards, there is a need to harness technologies that can help create a more competitive landscape in the UK, noting the success of countries such as Brazil and India when it comes to payments modernisation.
She recounted someone saying that the UK has been viewed as “the Mecca of open banking”, but warned that “actually we need to start being the fast followers”.
Next steps for the regulator
Responding to the calls for the PSR to press ahead with their plans for the VRP roadmap, Kate Fitzgerald said “I love it when TPPs [third-party providers] and PISPs [payment initiation service providers] tell me to hurry up and I love it when big banks tell me to hurry up, but the fact is, what you have to understand is that they are both telling me very different things.”
“They’re both saying we need a sustainable commercial model, but sustainable if you’re Santander is very different to if you’re Token,” she said.
Fitzgerald conceded that this is where the PSR needs to try to help, but said that it needs to be acknowledged that “this is not an easy environment to come up with a commercial model that is going to drive exactly the kind of incentives being discussed.”
“If it works for merchants, some of the banks aren’t going to take it and we’re not going to get take-up,” she cautioned.
Fitzgerald said that the PSR is treading a fine line, given that if it wants VRPs to compete with Visa and Mastercard, the price will need to be competitive and one that merchants are willing to pay.
Views on what that price should be differ, and Fitzgerald said that the PSR wants to bring together the likes of Pay.UK, industry and standard setters Open Banking Limited, as has happened with the SEPA Payment Account Access (SPAA) scheme in the EU.
“We’ve seen ways of industry coming together and understanding the costs and inputs needed for a commercial model,” she said.
She admitted that this will not be easy, given the competition risks, and said that it needs to be done “carefully and sensibly”.
