UK Finance, in association with law firm Addleshaw Goddard LLP, has released 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 enable customers to authorise registered payment service providers 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. VRPs are already in place for certain use cases. But they have the potential to benefit 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. It 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.
Driving competition and increasing efficiencies
Key objectives of the model clauses include driving competition and increasing efficiencies. For example, by removing some of the transaction cost of bilateral negotiations between payment providers. In addition, there is a need to ensure ensuring banking customers have a consistent experience on safety and security.
The model clauses are a genuine landmark in the development of VRPs says UK Finance. It argues that VRPs offer the potential to offer customers more choice about how they pay and the way merchants receive the payments. The ultimate aim is to bring more competition into the payments landscape.
The clauses are open source and their use is entirely voluntary. UK Finance encourages all stakeholders in the open banking ecosystem to consider their use where possible. It says the industry should take this opportunity to collaborate and drive the adoption and utility of VRPs forward.
VRPs a rest case for premium APIs
The Joint Regulatory Oversight Committee (JROC) is made up of the Financial Conduct Authority, Payment Systems Regulator, Competition and Markets Authority, and HM Treasury. It considers the vision and strategic roadmap for further developing open banking. And it oversees the planning and preparation of the future open banking entity.
JROC has identified VRPs as a key test case for premium application program interfaces (APIs).
Jana Mackintosh, Managing Director for Payments, Innovation and Resilience at UK Finance, said: “The thought leadership and model clauses we have developed with different types of firms including banks, fintech and schemes are a significant milestone in the progression of Variable Recurring Payments and a stepping-stone to a wider Multilateral Agreement.
“We look forward to working with the Joint Regulatory Oversight Committee and all stakeholders in the open banking ecosystem to maximise the opportunities Variable Recurring Payments have to offer, and in particular, expand Variable Recurring Payments through a commercially driven model that has customers at its heart with carefully targeted regulatory support.”
