In a significant step forward for the UK’s financial sector, UK Finance has released an industry proposal outlining a commercial model for Wave 2 of commercial variable recurring payments (cVRP). This development aims to expand the capabilities of Open Banking, potentially fostering innovation and efficiency in payments beyond traditional methods.
As Open Banking continues to gain traction, allowing consumers to securely share banking data with third-party providers for services like money management and payment initiation, cVRP represents a key evolution.
Open Banking has improved how consumers interact with their finances, promoting growth and competition.
Variable Recurring Payments (VRPs) enable customers to authorize payment providers to handle transactions from their bank accounts within predefined limits, such as “me-to-me” transfers between personal accounts.
Commercial VRPs extend this functionality to variable amounts, like settling an exact electricity bill each month, rather than fixed sums.
This flexibility positions cVRP as a cornerstone for unlocking broader Open Banking benefits, particularly in e-commerce and other sectors.The rollout of cVRP is structured in phases.
Wave 1 focuses on low-risk applications, including payments to regulated financial services, utilities, and government entities, with a commercial model proposed by Open Banking Limited.
Wave 2, however, targets higher-volume scenarios like e-commerce, which could drive substantial transaction growth.
UK Finance, with support from Deloitte, has crafted a proposal for this phase to ensure a sustainable framework that incentivizes all stakeholders—banks, fintechs, merchants, and customers.
At the core of the proposal is a balanced commercial model comprising three core elements: dimensions of the model (including fee structures), purchase protection options, and projected outcomes illustrating how assumptions affect transaction fees.
This structure seeks to encourage merchant adoption by exerting downward pressure on costs, while rewarding participants and prioritizing consumer safeguards.
Informed by industry engagement and expert input, the model aligns with the National Payments Vision’s call for sustainability.
Notably, it emphasizes customer protection through agreed limits and secure connections, addressing potential legal risks that require further exploration.
The benefits are multifaceted.
For consumers, cVRP offers secure, adaptable payments that enhance control and convenience.
Businesses, particularly merchants, stand to gain from reduced fees and streamlined e-commerce processes, potentially boosting adoption and volumes.
For the industry at large, this fosters innovation, competition, and growth in Open Banking, creating a more dynamic payments ecosystem.
Looking ahead, the proposal has been shared with UK Payments Initiative Ltd. to inform their decisions on Wave 2 implementation.
It serves as a discussion starter, with other stakeholders invited to weigh in.
Additional work on legal aspects is anticipated, paving the way for the first cVRP transactions in 2026—a year poised to be transformative for Open Banking.
Robert Driver, Principal for Payments, Innovation, and Resilience at UK Finance, emphasized that the report is for facilitation purposes, noting, “further work will be needed to address legal risks associated with potential options and proposals.”
Overall, this initiative could reshape the UK payments sector, making it more inclusive, efficient, and future-proof, as market participants collaborate to bring these advancements to consumers and businesses.
