NatWest Leads Race For Open Banking Recurring Payments

March 9, 2022
NatWest is aiming to become one of the first UK banks to enable variable recurring payments as the bank announces the first successful transaction.

NatWest is aiming to become one of the first UK banks to enable variable recurring payments (VRP) as the bank announces the first successful transaction.

Earlier this week (March 7), NatWest revealed that its open banking service Payit had successfully carried out its first-ever VRP transaction.

“VRP is set to revolutionise the way payments are made online and will look to replace traditional methods such as Direct Debit and card-on-file,” Payit said in a post.

VRP enables consumers to authorise a third party to make automated payments from their bank account with the potential to set a pre-agreed limit.

A VRP first

Launched in June 2020, Payit is an open banking service that allows customers to make instant online payments to participating retailers, using Faster Payments rather than a debit or credit card.

According to Payit, the successful execution of the VRP enables NatWest to become “the first UK Bank to successfully make a VRP using a Bank-owned open banking payments solution”.

The product won the first prize in the subscription category of OzoneAPI’s VRP Hackathon after it showed how VRP can be used to prevent vulnerable gamers from overspending on in-game purchases by adding a feature that allows a parent to pre-authorise limited expenditure for a child.

Last July, the Competition and Markets Authority (CMA) also mandated the use of VRP as the mechanism to implement sweeping by January 2022. Sweeping allows end users to automate the movement of funds between their own accounts.

Subsequently, recognising that large banks are not ready to meet that deadline, it was extended to July, by which banks must have completed the testing of the VRP standard in a live, controlled environment and be ready to progress to the general availability of the standard.

Card replacement?

Despite Payit’s ambition, replacing traditional recurring payments with VRP is likely to be a tall order. In particular, direct debits is a highly entrenched bill payment mechanism among both billers and consumers in the UK due to low cost and convenience.

According to UK Finance, of the 5.3bn personal regular payments made in the UK in 2019, 4.5bn were either direct debit or standing orders (90 percent plus of which are estimated as direct debits), while card-on-file payments accounted for a further 307m payments.

A key target use case for VRP could be as a replacement for card-on-file.

Usage of card-on-file transactions for recurring payments has been increasing as a result of the growing trend of streaming and subscription-based services, such as Netflix and Spotify.

One reason why card acceptance for these types of services is popular among these types of businesses is because it is easier, quicker and more flexible to sign up new customers on their websites compared with cheaper alternatives such as direct debits.

VRP, it is argued, offers similar flexibility and could mean significant cost savings for merchants compared with using card-on-file.

For banks such as NatWest, this might be a double-edged sword as it will also mean lower card interchange revenues.

NatWest will pilot the VRP functionality this year, with plans to make Payit one of the first platforms to roll VRP out as a payment solution.

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