PSR issues call for views on expanding VRPs

The Payment Systems Regulator (PSR) issued a call for views on expanding variable recurring payments (VRPs) in December 2023, setting out initial proposals to extend the payment method into new use cases through a Phase 1 roll-out¹. The regulator said it received responses from across the open banking ecosystem and has published its response to the call for views alongside all non-confidential responses it received¹.

VRPs let customers connect authorised payment providers to their bank account using open banking so that they can initiate recurring payments¹. The PSR said it wants to expand VRPs to increase choice and flexibility for consumers and businesses¹.

Chris Hemsley, Managing Director of the Payment Systems Regulator, said the work formed part of a wider strategy:

The regulator has identified three Phase 1 use cases: utility bills, payments to central and local government, and more financial transfers². It said these should be easier to implement because of existing functionality within the system and existing sectoral and legislative user protections². The PSR also set out a temporary approach for VRP Phase 1 not to have an account servicing payment service provider (ASPSP) charge, offsetting costs by removing the Faster Payments charge from the ASPSP².

On pricing, the regulator said it saw good levels of support for some form of centrally set pricing but little agreement on how that price should be determined or who should set it². It set out principles that prices should broadly reflect relevant long-run costs, incentivise investment, innovation and adoption to drive network effects, and be fair and transparent². The PSR said that without targeted intervention, misaligned incentives and account providers' unique position in the market would mean progress would not match the opportunity available².

Consumer research commissioned by the regulator found that more than two-fifths (43%) of people asked about current bills and regular payments said they wanted "greater control over when I pay and how much" and believed VRP would help with that². The research also indicated that younger people aged 18 to 34, those with low financial resilience, those with fewer savings and those who may be more in debt were more likely to say they would use flexible payment options².

Why it matters for households

VRPs sit alongside existing ways of paying regular bills, such as Direct Debits, which carry their own guarantee arrangements. The PSR's proposals cover variable recurring payments for utility bills, payments to central and local government and financial transfers, so households using those payment routes are the group most directly affected by any expansion². The regulator's own research suggests demand for greater control over payment timing and amounts among some consumers². The temporary approach of no ASPSP charge in Phase 1, with the Faster Payments charge removed from the ASPSP instead, is a pricing arrangement between firms rather than a charge to customers². The PSR has said the initial approach may need to evolve as uses of VRP change, and that different use cases present different risks and costs and so may require different commercial models².

What happens next

The PSR said it would continue to analyse responses and seek evidence following the consultation and would publish a response in summer 2024². Its published response to the call for views, together with the non-confidential stakeholder submissions, runs to a 16.5 MB document¹. The regulator has not reported a date for any final decision on expanding VRPs beyond that.

The PSR's wider work on payments, fraud refunds and card fees is set out in its role as the Payment Systems Regulator, with further material under regulation policy and current accounts.