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Open Banking Limited (OBL) has announced a public consultation on the Multilateral Agreement (MLA) for commercial variable recurring payments (cVRP), which could lead to increased use of open banking.
cVRP is an automated payment mechanism that enables businesses to process variable payments at irregular intervals without requiring explicit authorisation for each transaction.
The new OBL consultation is intended to make sure that the MLA meets the needs of the cVRP framework, while also identifying and addressing any potential issues that could impact customer experience or hinder adoption.
The MLA consists of a participation agreement, a rulebook and supporting schedules.
The participation agreement defines the contractual relationship between OBL as the operator and participating firms.
These firms can act as payment initiation service providers (PISPs), which are usually fintechs, or account servicing payment service providers (ASPSPs), which are usually the incumbent banks.
The rulebook outlines the operational guidelines that all participants must follow, and OBL has collaborated with Pay.UK and industry stakeholders to develop the policies governing cVRPs, with legal drafting support from Addleshaw Goddard.
The MLA sets out the technical and governance framework, but the commercial model, defining how PISPs compensate ASPSPs for API access, is still under development and will be addressed separately after the consultation.
The consultation invites feedback from industry participants on several key aspects, including the MLA’s role in fostering competition and financial inclusion, its flexibility for different market participants, and whether it provides adequate customer protections.
OBL has said that, following the consultation period, it will review industry feedback and refine the MLA accordingly.
Further operational guides are expected to be released to support participants in implementing cVRPs effectively.
The consultation runs until February 28, 2025, and stakeholders can respond either by email or via an online portal.
Are VRPs about to have their take-off moment?
The MLA for cVRPs could represent the start of a major shift in the UK payments ecosystem, creating new opportunities and challenges for banks and payments and e-money firms.
If widely adopted, it could reshape recurring payments, reducing dependence on card networks and making way for more flexible and cost-effective payment solutions for merchants and consumers alike.
The main beneficiaries of this standardisation with the MLA, and the adoption it could lead to, are undoubtedly fintechs.
PISPs and e-money firms could monetise cVRP services by offering businesses a more efficient and cost-effective alternative to direct debits and card-on-file payments, as has been the ambition of firms such as TrueLayer and GoCardless.
This could make way for new revenue streams while reducing reliance on traditional payment methods.
cVRP also enhances the customer experience by allowing merchants to collect payments with greater flexibility than direct debits, which require fixed amounts and schedules.
This improved flexibility could help businesses retain customers and reduce payment friction, making transactions smoother for both merchants and consumers.
However, payments and e-money firms will need to comply with the MLA rules, which could include technical and contractual requirements for participating in the cVRP ecosystem.
This new regulatory and compliance burden may require firms to invest in new systems and processes to ensure adherence to the agreement.
Banks may also end up benefiting from cVRP uptake if they opt to embrace it.
For example, banks will be able to charge PISPs for access to their APIs under the cVRP model, creating a commercial incentive that has so far been missing from the open banking model in the UK and the EU.
However, with cVRPs, banks will face more competition from fintechs and non-bank providers that are able to offer more innovative recurring payment solutions.
In addition, like PISPs, they will face an increased compliance burden, as they will need to ensure API compliance with the MLA and maintain thorough security measures for cVRP transactions.
