For anyone not closely following developments in Open Banking Payments, it would have been easy to dismiss the UK Competition and Markets Authority’s July mandate that Sweeping be made available to banking customers via Variable Recurring Payments as an arcane procedural update to an obscure regulation. But nothing could be further from the truth.
In fact, VRPs are like a portal into a new financial paradigm where consumers enjoy an unprecedented level of control over their finances and where new products that were once inconceivable, deliver countless benefits to individuals and businesses.
VRPs allow customers to connect authorised Payment Initiation Service Providers (PISPs) such as Moneyhub to their bank account to automatically transfer, or ‘sweep,’ money between a customer’s own accounts within agreed parameters. It sounds simple enough, but the impact on financial health could be immense.
VRPs 1.0
The first iteration of VRP-enabled sweeping products, let’s call them VRPs 1.0, should hit the market before the end of the year (to match the CMA’s timetable) and will focus on financial empowerment and automation.
For example, enabling customers to set rules and thresholds so that money moves automatically between their accounts under certain predetermined scenarios should mean excess cash doesn’t sit idly in a current account when it could be earning interest in a savings account, and overdraft fees are not charged when a customer has sufficient funds in another account that could be moved over to prevent going overdrawn.
Santander offers a straightforward example of how this could work in practise. The Spanish bank pays its UK current account holders interest on balances up to £20,000, but pays no extra interest on balances above that threshold. Santander customers could set up VRPs to sweep any money that comes into the account above £20,000 into savings accounts.
Another powerful use case for VRPs could be for the self-employed as sweeping would enable them to put some of it away into a savings account ready to pay their tax bill every time they receive any income.
VRPs 2.0
Still, that’s just scratching the surface of what’s possible with VRPs.
If we let our imaginations run for a minute, we can also envisage VRPs making an impact beyond banking. We call these VRPs 2.0.
Amazon provides a fictitious yet achievable example. Instead of paying for items on Amazon with a credit card, and potentially occurring fees, not to mention leaving my card details vulnerable to potential security breaches, why couldn’t we simply buy directly from Amazon straight from our bank account? In this scenario I could set up rules for myself, such as no single purchases above £200 or limiting my total monthly spend to £300, all of which would be executed automatically by Open Banking technology.
Taking the Amazon example a step further, my financial services providers, via the power of Open Data, could say: “It looks like you’ve bought a television; would you like insurance for that?” And then there’s also the potential to embed affordability checks into APIs, so customers for whom ‘buy now pay later’ deals are not appropriate can avoid racking up debts.
Permissioned payments
Another 2.0 scenario could be to set up permissions for other people to make payments from my account within certain thresholds at a shop or business with whom I have set up an account. This could be useful when, for example, your children go to buy lunch.
At Moneyhub we've been working on VRPs since before Open Banking was an established concept because even back then we understood that they could open up a world of possibilities.
The CMA mandate is very welcome news because VRP will become a regulated activity, which means there’s an imperative to deliver it.
Why this matters is that money management will become fully automated, yet completely within the control of the consumer, enabling consumers to save more and avoid the pitfalls of the legacy financial system, such as overdraft fees.
And to that end, it’s time to let our imaginations soar and develop the best propositions we can.
Author
Dan Scholey
Dan is COO of Moneyhub, and has been heavily involved in building and delivering innovative FinTech solutions for over a decade.
Dan is passionate about helping organisations succeed through effective product strategies and has a proven track record for achieving targets, as well as managing teams to deliver products and propositions that address specific client needs.