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UK Finance and Addleshaw Goddard Set Groundwork to Develop VRPs for Commercial Use

A new report by UK Finance in association with law firm Addleshaw Goddard LLP, has revealed key issues and processes that are needed to develop variable recurring payments (VRPs) for commercial applications.

In order to support the development of VRPs for commercial applications in the UK, the UK Finance and Addleshaw Goddard report has set out recommendations for how issues can be addressed through contractual arrangements. Furthermore, it contains a set of model contractual terms that can be used in arrangements between account providers and PSPs who are building and developing these propositions.

Rebecca Hickman, financial regulation partner (payments) at Addleshaw Goddard
Rebecca Hickman, financial regulation partner (payments) at Addleshaw Goddard

Commenting on the report, Rebecca Hickman, financial regulation partner (payments) at Addleshaw Goddard said: “Addleshaw Goddard is pleased to have worked with UK Finance to develop the commercial variable recurring payments model clauses.

“This is a positive step forward to help unlock the potential for open banking payments. The financial services team at Addleshaw Goddard is proud to have built a strong relationship with UK Finance and leading payments providers, with its insights and knowledge of regulations.”

VRPs are a form of payments instruction that allows customers to authorise registered payment service providers (PSP) to initiate payments from their bank account on an ongoing basis. The consent given to the PSP will enable them to make recurring or subsequent payments, where the timing or the amount might vary, within agreed limits.

VRPs are already in place for certain use cases but have the potential to provide significant benefits to consumers for commercial applications, for example, to pay a phone bill.

The model contractual terms

Key objectives of the model clauses suggested in the report include:

  • driving competition
  • increasing efficiencies by removing some of the transaction cost of bilateral negotiations between payment providers
  • ensuring banking customers have a consistent experience on important matters such as safety, security and assurance to provide customers with the confidence to use VRPs for commercial applications.

The model clauses are a genuine landmark in the development of VRPs, which have the potential to offer customers more choice about how they pay, the way merchants receive the payments, and bring more competition into the payments landscape.

The clauses are open source, and while their use is entirely voluntary, UK Finance encourages all stakeholders in the open banking ecosystem to consider their use where possible, and for the industry to take this opportunity to collaborate and drive the adoption and utility of VRPs forward.

Looking to the future and integration

The Joint Regulatory Oversight Committee (JROC) is made up of the Financial Conduct Authority, Payment Systems Regulator, Competition and Markets Authority, and HM Treasury, and considers the vision and strategic roadmap for further developing open banking, and the planning, preparation and overseeing of the future open banking entity.

JROC has identified VRPs as a key test case for premium application program interfaces (APIs). APIs enable software developers to integrate data and features from other applications rather than developing them from scratch, such as when a weather app on a person’s phone uses data from a third-party provider to give that person updates.

Jana Mackintosh, managing director of payments, innovation and resilience at UK Finance
Jana Mackintosh, managing director of payments, innovation and resilience at UK Finance

Jana Mackintosh, managing director for payments, innovation and resilience at UK Finance, said: “The thought leadership and model clauses we have developed with different types of firms including banks, fintech and schemes are a significant milestone in the progression of variable recurring payments and a stepping-stone to a wider Multilateral Agreement.

“We look forward to working with the Joint Regulatory Oversight Committee and all stakeholders in the open banking ecosystem to maximise the opportunities variable recurring payments have to offer, and in particular, expand variable recurring payments through a commercially driven model that has customers at its heart with carefully targeted regulatory support.”

Hickman from Addleshaw added: “The UK has a world-leading open banking infrastructure. Yet there remains a shared vision across the market that more can be done to unlock the potential of open banking. This vision is shared by regulators who are increasingly seeing interbank payments as a way of boosting competition between different payment systems. They are also envisioning a future where customers could just as easily pay for products or services using interbank payments as they can by using their cards today.

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