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Although open banking is struggling to gain a foothold in the UK, many Virgin Money customers are using pay by bank to pay down their credit card balance.
At last week’s Open Banking Expo in London, Virgin Money revealed that 94 percent of its credit card customers are now using pay by bank to pay down their balance.
In February 2023, Virgin launched a pay by bank option for users of its iOS and Android apps, in an effort to reduce customer complaints related to debit card repayments.
Prior to the launch, Virgin said that use of debit cards to settle credit card balances had driven poor outcomes across “all channels”, both for customers and for Virgin itself.
Manual input of card details introduced friction to the payment experience; settlement times of up to five days led to unexpected late fees and loss of rewards; and each transaction was costly in fees to Virgin.
In contrast, when using pay by bank, customers do not need to input any personal details to make a payment, and each payment is cleared within two hours.
Working with Global Payments and Token.io, a provider of account-to-account (A2A) infrastructure, Virgin initially rolled out pay by bank as one option among several for credit card repayments.
The pay by bank option was placed at the top of the list of options, and this led to around two in five credit card customers switching to pay by bank immediately.
Looking to increase that adoption, Virgin then introduced a more prominent full-screen “splash” prior to the list options, explaining the benefits of pay by bank and how to use it.
Source: Virgin Money
Within two months, more than 80 percent of credit card customers had switched to pay by bank, and less than 5 percent of these customers made a subsequent debit card repayment.
In June 2023, Virgin decided to go “all in” on pay by bank. For credit card customers in good standing, the option to pay by debit card or manual bank transfer within the app was disabled.
Nick Soulsby, senior digital strategy manager at Virgin Money, said that for those in arrears or over their credit limits, the previous options remained unchanged, with pay by bank appearing as one of them.
From July 2023 onwards, this helped Virgin to meet its obligations under the Consumer Duty, which require firms to make exceptions for vulnerable customers or those in financial difficulty.
Similarly, Soulsby said that in the event that pay by bank experiences technical difficulties, Virgin can switch all customers back to the previous list of repayment options within the app.
As things stand, Virgin Money is now receiving between £300m and £350m in open banking payments each month.
A stepping stone to VRPs?
Given the popularity of the pay by bank option, the three partners believe it could provide a stepping stone towards variable recurring payments (VRPs).
Cormac Bane, product manager at Global Payments, said that since pay by bank was introduced, Virgin’s credit card customers are making more “micropayments” throughout the month.
This has led to fewer customers sending late payments, fewer customers losing rewards, and fewer complaints related to credit card repayments.
Customers feel like they have “more control” when using pay by bank, said Bane, who believes that this sense of control could be optimised using VRPs.
VRPs are a form of open banking payment that uses Faster Payments rails. They have the potential to significantly reduce friction and costs compared with card payments or Direct Debit, and they can be programmed to execute at regular intervals based on specific parameters.
Bane said it will be “tricky” to get the customer journey right, but nonetheless sees VRPs as an ideal repayment option.
At present, however, the regulatory landscape for VRPs is still a work in progress, with the Payment Systems Regulator (PSR) currently behind schedule in rolling out phase 1.
Phase 1 is focused on introducing VRPs in low-risk use cases such as local and central government, regulated utilities and regulated financial services, but the technology is still not live.
By the end of this year, the PSR is expected to publish new draft proposals on VRP expansion, although this will still be targeting use cases and organisations within phase 1.
Santander ready to play catch up
On day one of the Open Banking Expo, as covered by Vixio, Santander also announced that it is working on a pay by bank option for credit card repayments.
As with Virgin Money, the feature is being built in partnership with Token.io.
Token.io said the solution will eliminate “error-prone” manual data entry, and will support biometric strong customer authentication (SCA) for payments made on mobile devices.
“Token.io’s technology, combined with Santander's dedication to exceptional service, will undoubtedly set new standards for how financial institutions leverage open banking to create innovative value propositions,” said Token.io CEO Todd Clyde.
