Variable Recurring Payments: The Future of European Open Banking

Open banking in Europe is entering a new phase of growth. While PSD2 legislation laid the groundwork for financial data access, forthcoming regulations such as PSD3 and the Financial Data Access (FiDA) framework are expected to unlock the full potential of open banking — and even open finance. Central to this evolution is the rise of Variable Recurring Payments (VRP), a payment method poised to become a cornerstone of future financial services.

VRP builds on open banking technology, offering a modernised alternative to traditional direct debits. Unlike direct debits, which operate on pre-set amounts and schedules, VRP allows for dynamic, real-time payments between bank accounts. Users have greater control, as payments can be customised, amended, or cancelled directly through banking apps, eliminating the rigid nature of legacy payment systems.

There are two primary forms of VRP: "sweeping" and "commercial." Sweeping VRP refers to automated transfers between a consumer’s accounts, while commercial VRP facilitates payments to third-party service providers. Sweeping VRP is already being rolled out in the UK, where it is expected to modernise personal financial management. Commercial VRP, however, holds even greater potential, enabling automated payments for subscriptions, utility bills, and other recurring expenses.

The UK is currently leading in VRP development, with the Competition and Markets Authority (CMA) mandating major banks, known as the CMA9, to implement sweeping VRP. This early adoption offers a valuable learning opportunity for European regulators and financial institutions. By observing the UK's successes and challenges, European markets may be able to accelerate their rollout of VRP.

The potential benefits of VRP are significant. Businesses can offer consumers a faster, simpler payment experience, enhancing customer satisfaction. Financial control is also improved, as users can track, modify, or cancel payments in just a few taps through their banking apps. This shift reduces the risk of forgotten subscriptions or unwanted charges. VRP's flexibility also supports vulnerable consumers by helping them avoid overdraft fees and maintain financial stability.

On the regulatory front, the UK is driving progress with plans to expand VRP usage. European regulators are closely monitoring these developments, aiming to create frameworks that support financial innovation while protecting consumer rights. As regulatory landscapes evolve, VRP is set to become a vital part of Europe’s open banking ecosystem, empowering consumers and reshaping payment experiences.