A new payment system could see the beginning of the end for direct debits when it is introduced through open banking in the summer.
Variable recurring payments (VRPs) will offer consumers more control over the regular payments they make.
They will start to be introduced in July when new Competition and Markets Authority (CMA) rules come into force.
These are concerned with open banking, which allows access and control of consumer banking and financial accounts through third-party applications.
VRPs will be made available via application programming interfaces (APIs).
They will give bank customers the option to automatically move funds between linked accounts, a process known as a sweeping payment.
Money could automatically be ‘swept’ from a current account to a savings account if there are excess funds available, for example.
Conversely, money could be moved automatically from a savings account to a current account if funds are running low.
VRPs will also be able to make recurring payments in a similar way to direct debits, but with the consumer able to set a cap on how much can be taken – both in one payment and over a set period.
Currently, direct debits allow for variable amounts to be taken out on a recurring basis but without the account holder being able to set a cap.
VRPs could give consumers more control of their accounts
Sean Devaney, vice president of banking and financial markets at IT services firm CGI, told Computer Weekly that while this sounded like a minor change, it could have a big “difference for corporates receiving money and individuals paying it”.
It could be particularly important if energy and other living costs continue to rise and many people find themselves with a need to manage the money that goes in and out of their accounts more carefully.
While the rules opening the way for VRPs will come into play in July, it could be a while before customers can sign up for these services.
NatWest recently announced that it would begin trialling VRPs via its open banking payments solution Payit but said that it didn’t expect a commercial product to be available until early in 2023.
Kieran Hines, analyst at Celent, said that VRPs had huge potential, but it would take time for momentum to build, especially as banks will have to agree commercial terms with parties using VRPs for purposes outside making sweeping payments.
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