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Open Banking Limited (OBL) has published the much-anticipated proposals for commercial variable recurring payments (cVRPs) in the UK, marking a step forward for the potential direct debit disrupter.
The UK standard setter for open banking has published the Commercial Model for Variable Recurring Payments – Wave 1 for consultation, with research undertaken by Frontier Economics exploring both the pricing structure and sustainability of Wave 1 cVRP services.
Variable recurring payments are an emerging form of payment that makes use of open banking technology, and allows consumers to authorise regulated third-party providers to initiate flexible, automated payments directly from their bank accounts.
Unlike direct debits, cVRPs offer enhanced control and transparency, and payments can vary in amount and timing within agreed limits and always require explicit user consent.
VRPs have recently become subject to fatigue in the payments space, mainly due to a lack of regulatory decision making, so this from OBL should be able to inject some momentum back into the initiative, which is seen by regulators and fintechs alike as a way of introducing more competition into the UK payments landscape.
Wave 1 of the cVRP rollout will focus on a limited number of use cases, including payments to regulated utilities, rail providers such as Transport for London, financial institutions, e-money firms, government bodies and charities.
For now, e-commerce transactions remain outside the scope, pending further evaluation and industry readiness.
The report outlines a commercial model built around premium APIs, managed by the banks, which will enable customers to set up and manage VRP consents, allowing merchants to begin receiving automated payments directly.
OBL says a fair, transparent and proportionate fee model is essential to building trust and supporting adoption, and the commercial framework includes not just the API access fees but also a scheme fee to ensure the long-term viability of the cVRP operator.
The ultimate goal is to balance investment recovery for API providers with affordability for merchants and accessibility for consumers.
Pricing proposals
Frontier Economics evaluated several pricing models, with options ranging from recovering costs quickly to deferring them over a ten-year horizon.
Suggested transaction fees range between 3p and 8p, depending on how costs are spread between the adoption phase (years 1–5) and recovery phase (years 6–10).
In the consultation, respondents are being asked to consider which pricing format, such as a fixed multilateral fee, a price cap with room for negotiation or a fallback rate, would best incentivise adoption while remaining compliant with competition law.
Meanwhile, OBL is seeking industry feedback on several key issues related to the proposed pricing model for Wave 1. These include whether the model aligns with the pricing principles set by the Financial Conduct Authority and Payment Systems Regulator, supports competition and accessibility for firms of all sizes and enables account information service payment service providers (banks) to recover expenses while maintaining fair and non-discriminatory pricing.
The consultation also asks for views on the optimal duration for the adoption and recovery phases, as well as the best approach to transitioning between Wave 1 and future commercial models, such as those currently being explored by Deloitte and UK Finance for Wave 2.
Stakeholders are invited to submit their responses by May 16, 2025, and although this consultation focuses solely on Wave 1, OBL has acknowledged wider industry efforts to create a long-term, sustainable pricing model for VRPs, particularly as they evolve to support more complex use cases like e-commerce.
