UK Finance, in association with law firm Addleshaw Goddard, has published a report on the use of model clauses to support the development of the Variable Recurring Payments (VRPs) for commercial applications in the UK.
VRPs are a form of payments instruction that allows customers to authorise registered payment service providers (PSP) to initiate payments from their bank account on an ongoing basis.
The consent given to the PSP will enable them to make recurring or subsequent payments, where the timing or the amount might vary, within agreed limits.
Variable Recurring Payments are already in place for certain use cases but have the potential to provide significant benefits to consumers for commercial applications, for example, to pay a phone bill.
The report identifies key issues and processes that are needed to develop VRPs for commercial applications and sets out recommendations for how those issues can be addressed through contractual arrangements.
The report then contains a set of model contractual terms that can be used in arrangements between account providers and PSPs who are building and developing these propositions.
Key objectives of the model clauses include driving competition, increasing efficiencies by removing some of the transaction cost of bilateral negotiations between payment providers, and ensuring banking customers have a consistent experience on important matters such as safety, security and assurance to provide customers with the confidence to use VRPs for commercial applications.
The model clauses are a genuine landmark in the development of VRPs, which have the potential to offer customers more choice about how they pay, the way merchants receive the payments, and bring more competition into the payments landscape.
The clauses are open source, and while their use is entirely voluntary, UK Finance encourages all stakeholders in the Open Banking ecosystem to consider their use where possible, and for the industry to take this opportunity to collaborate and drive the adoption and utility of VRPs forward.
The Joint Regulatory Oversight Committee (JROC) is made up of the Financial Conduct Authority, Payment Systems Regulator, Competition and Markets Authority, and HM Treasury, and considers the vision and strategic roadmap for further developing Open Banking, and the planning, preparation and overseeing of the future Open Banking entity.
JROC has identified VRPs as a key test case for premium application program interfaces (APIs). APIs enable software developers to integrate data and features from other applications rather than developing them from scratch, such as when a weather app on a person’s phone uses data from a third-party provider to give that person updates.
“The UK has a world-leading Open Banking infrastructure. Yet there remains a shared vision across the market that more can be done to unlock the potential of Open Banking,” explains Rebecca Hickman, Financial Regulation Partner (Payments) at international law firm Addleshaw Goddard.
“This vision is shared by regulators who are increasingly seeing interbank payments as a way of boosting competition between different payment systems, envisaging a future where customers could just as easily pay for products or services using interbank payments as they can by using their cards today.
“This is a positive step forward to help unlock the potential for Open Banking payments.”
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