There are the two main applications of VRPs:
Sweeping VRPs: the automatic transfer of money between accounts held in the same name. Users would set the conditions i.e., “if current account balance at Bank A falls to £100, transfer £500 from Bank B”. The Competition and Markets Authority (CMA) has mandated that the 9 banks under the CMA Order implement VRPs for sweeping and see the ability to move money between accounts to earn a higher rate of interest, or access cheaper credit as essential enablers of smarter finance. And as they could protect consumers from unnecessary overdraft fees, regulators expect the transfers to be free.
Commercial VRPs: similar to a Direct Debit or card-on-file payments, merchants authorise third-party Payment Initiation Service Providers (PISP) to initiate payments from their customers’ accounts, enabling them to deliver a seamless, embedded payment experience – for example, via wallets that use VRPs to pay directly from bank accounts
VRPs could help unlock significant value for consumers and small and medium-sized businesses (SME) in the form of:
- Lower overdraft costs: 20 million consumers and 1 million SMEs could save up to £600 million a year
- Better interest rates: up to 40 million consumers and 6 million SMEs could benefit up to £1,200 million each year
- Increase in financial resilience: up to 11 million consumers could start a saving habit.
VRPs offer the potential to transform payments using familiar payment rails with safe and simple authentication technology. They provide merchants with a flexible alternative to Direct Debits or cards, offer lower fees, no chargebacks, immediate settlement, reduced risk of fraud and enhanced control for consumers. This could potentially see VRPs used for several types of recurring payments i.e., household bills, subscriptions, or lodged/card on file payments. Though not a new concept, VRPs could be seen as the missing part of Open Banking.