Variable Recurring Payments (VRP) enable automated payments with varying amounts, offering flexibility and control to both consumers and businesses. This innovative model allows companies to bill customers based on usage, adapting to changing needs. Unlike fixed recurring payments, VRP can handle fluctuations in payment amounts, making it ideal for services like utilities or subscriptions.

For example, instead of charging a fixed monthly fee, a VRP system adjusts payments based on real consumption, ensuring a tailored and seamless payment experience.

 

How Does VRP Work?

With VRP, businesses receive authorization from the customer to debit their account for different amounts automatically. Customers set parameters, such as limits or conditions, ensuring they retain control over their finances while automating the process. VRP is often powered by open banking technology, allowing third-party providers to manage these payments securely and efficiently.

 

The Benefits of VRP

  1. Flexibility: VRP adjusts payments to match the customer’s consumption, providing a personalized payment experience.
  2. Convenience: Payments occur automatically, reducing missed or late payments.
  3. Cost-Effective: VRP reduces friction by minimizing transaction failures, improving cash flow for businesses.
  4. Customer Control: Consumers can set spending limits, ensuring financial control while enjoying automation.

 

VRP and Open Banking

VRP is a key part of the future of open banking. It allows third-party payment providers (TPPs) to initiate payments on behalf of customers through secure APIs. This system is gaining traction across Europe, with fintech companies pushing for more widespread adoption. Open banking’s infrastructure enables VRP to function seamlessly, offering real-time and secure transactions.

 

VRP vs Traditional Recurring Payments

Traditional recurring payments charge a fixed amount at regular intervals, which works for services like Netflix but isn’t ideal for usage-based models. VRP provides an adaptable alternative by adjusting payments according to real-time usage, eliminating the need for manual changes or interventions. This adaptability makes VRP ideal for industries like utilities, telecommunications, and cloud services.

Traditional Recurring Payments:

  • Fixed amount.
  • Rigid billing cycle.
  • Risk of overpayment or underpayment.

Variable Recurring Payments (VRP):

  • Adaptive payments based on actual usage.
  • Flexible billing, suited to fluctuating amounts.
  • More convenient for businesses and consumers alike.

 

Key VRP Players

Several leading fintech companies are driving the VRP movement, particularly in Europe and Africa, where open banking adoption is advancing.

 

2024: The Year of VRP?

According to a 2024 report by ThePaypers, VRP volumes are rapidly increasing. In the UK alone, VRP accounted for 8.7% of all open banking payments in September 2023​. As more industries explore open banking solutions, VRP is expected to grow significantly. However, there are still challenges around liability frameworks and pricing models that need to be resolved before VRP reaches its full commercial potential​.

 

Conclusion: Why VRP is the Future

As businesses and consumers look for smarter, more adaptive payment solutions, Variable Recurring Payments will play a key role in shaping the future of digital finance. Its ability to flexibly adjust to usage patterns and ensure real-time payments makes it an ideal solution for dynamic industries. With companies like VOLT and GoCardless leading the way, 2024 could be the breakthrough year for VRP, solidifying its place in the global payment ecosystem.

 

Interested in VRP for PayFacs?

If you’re a PayFac and want to learn more about how VRP can benefit your business, check out our co-written article with Volt on this topic: VRPs: A Game-Changer for PayFacs.

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