Variable recurring payments: The UK payments ecosystem is ready for the next phase of Open Banking

The fourth edition of the Token.io and Open Banking Expo Variable Recurring Payments and Future of Payments industry survey report, published in October 2024, has contributed further to the payments conversation.

Payments have been in the spotlight in the UK in recent weeks and months – and for good reason.

The UK is widely regarded as an Open Banking trailblazer, having provided the blueprint for Open Banking when it was rolled out in 2018. However, when it comes to payments, the UK has more of a reputation as a laggard than a leader. This is largely because instant payment schemes, such as Pix in Brazil and India’s UPI, have witnessed enormous growth and widespread adoption in just a few years.

At Open Banking Expo UK & Europe in London on 15-16 October, the Payments Stage hosted sessions during which payments leaders discussed how the full potential of Open Banking payments can be realised in the UK and considered the path to payments modernisation.

الاتصال Delivering a truly commercial model for variable recurring payments (VRPs) – one that incentivises all participants and players – was the focus of one panel debate on the Main Stage, but it was a topic that came up repeatedly across the two-day Expo. There were explicit calls for action, alongside clear recognition of the need for industry stakeholders, regulators, and banks to work together to ensure Open Banking-enabled payments become a mainstream method.

VRP survey – findings revealed

The fourth edition of the Token.io and Open Banking Expo Variable Recurring Payments and Future of Payments industry survey report, published in October 2024, has contributed further to the payments conversation.

The survey was conducted among more than 100 senior leaders across UK and European banks, merchants, PSPs, and TPPs to gauge their readiness for and attitudes towards commercial VRPs (cVRPs) in the UK and dynamic recurring payments (DRP) in Europe.

To provide some context, since our last industry survey with our friends at account-to-account payment infrastructure provider Token.io, a commercial VRP pilot was expected to have been rolled out as part of the next phase of Open Banking in the UK.

So, how is the ecosystem feeling towards cVRP and DRP?

الاتصال Despite the lack of progress, the findings indicate that, when it comes to VRP and DRP, payment service providers (PSPs), banks, and merchants are largely positive and recognise the benefits to be gained from implementing cVRPs.

The majority of banks surveyed, at 79%, believe cVRP will be beneficial to the overall UK payments ecosystem.

Meanwhile, both UK and European PSPs and third-party providers (TPPs) recognise the importance of cVRPs in driving greater merchant adoption of A2A payments, with 97% describing cVRPs as ‘important’, and 28% and 33%, respectively, as ‘extremely important’.

That’s because cVRP and DRP are expected to generate higher success rates and deliver better user experiences versus traditional recurring payment methods. When asked which payment method has the greatest ‘ability or potential’ to provide the best user experience, 59% of those surveyed said cVRP/DRP, above card on file (23%), and direct debit (18%).

It's that ‘frictionless’ user experience that is expected to drive the greatest end-user adoption of VRPs, cVRPs, and DRPs, according to the survey findings. This is not unique to the latest industry survey, as our 2022 and 2023 industry surveys also put frictionless user experience as the top potential driver of adoption.

The ability to view and control recurring payments emerged as the second single aspect most likely to drive adoption.

Barriers to adoption?

Of the merchants surveyed, 57% plan to convert card payments to cVRPs, the report revealed, motivated by factors such as lower processing fees and avoidance of chargebacks.

However, only 29% of merchants plan to convert direct debit to cVRP. Those who do intend to seek to convert this recurring payment type cite faster settlement times and reliability, among other factors.

With several potential use cases for cVRPs, our survey sought to establish a realistic timeline.

Half of banks expect to support cVRPs for low-risk use cases, such as government payments, utilities, and financial services, by the end of 2025. More than one-third of banks surveyed expect to support cVRPs for ecommerce use cases by the end of next year.

However, survey participants voiced concerns about what they view as a lack of bank support – in fact, this was the most common concern to emerge (53%), ahead of consumers’ willingness to adopt (49%), lack of a consumer protection framework (49%), and a viable commercial model (46%).

الاتصال

Charles Damen, chief product officer at Token.io, agrees that ‘broad bank adoption is needed to establish the reach that will be critical for the uptake of cVR