Understanding consumer protection and commercial VRPs

The emergence of Variable Recurring Payments (VRPs) marks a significant milestone in the realm of open banking payments. These innovations are not only elevating security standards but also enhancing user experiences, granting consumers more authority over their transactions, and providing businesses with quicker, more cost-effective, and reliable payment solutions.

Commercial VRPs, also known as ‘me-to-business’ payments, are emerging as a formidable alternative to traditional card-on-file methods, simplifying transactions with your preferred online retailers. However, this novel payment mechanism, set to act as an alternative to Direct Debits and card-on-file systems, raises important questions about consumer protection.

Challenges in Adopting Commercial VRPs

The widespread adoption of Commercial VRPs across UK and EU banks is still in its nascent stages. A broader market presence is essential for both merchants and banks to embrace this innovative payment method.

We have already witnessed the successful implementation of sweeping VRPs in some sectors demonstrating the benefits available to both businesses and consumers.

Consumer Safeguards with VRPs

Various issues can arise with payments, including incorrect amounts, delays, defective goods, or fraud. Understanding the protective measures in place for consumers is crucial.

Current consumer protections include frameworks like ATOL, CCR, CRA, and ABTA. Under the Consumer Rights Act, VRP users are entitled to full refunds for returned goods. In the travel sector, for instance, customers can receive full refunds if an airline ceases operations.

A key advantage of open banking is the incorporation of Strong Customer Authentication (SCA), which ensures safer payment transactions. This reduces the number of intermediaries and potential points of vulnerability, safeguarding both businesses and consumers from fraud and data breaches.

In the event of a VRP issue, regulated industries typically have established dispute management processes for both merchants and banks. These existing refund mechanisms standardise the process, enhancing the payment experience for consumers.

The Advantages of Choosing Commercial VRPs

Let's examine some key benefits of Commercial VRPs compared to traditional payment methods:

• VRPs do not store credit card details like card-on-file payments, only the account information.
• Consumers enjoy more flexibility with VRPs compared to the often rigid schedules and amounts of direct debits.
• VRPs require consumer authorisation for each payment, offering enhanced control and security.
• As part of open banking's Faster Payments Scheme, VRPs facilitate almost instantaneous fund transfers.
• Consumers can easily review, approve, or cancel recurring payments through their online banking platforms.

Future Regulatory Developments for VRPs

The potential of Commercial VRPs to rival established methods like Direct Debit and card-on-file, while offering superior control and security, is remarkable. However, mainstream adoption hinges on the careful implementation of regulatory measures.

The Joint Regulatory Oversight Committee (JROC), co-led by the Financial Conduct Authority (FCA) and the Payments Systems Regulator (PSR), is spearheading a working group to expand Commercial VRP rollout. Phase 1, targeting lower-risk industries like regulated financial services and utility companies, is set to begin in Q3 of this year.

Concurrently, policy proposals are being refined, and new pricing principles will be introduced. These developments are poised to bolster open banking adoption, showcasing industry success stories in conversion rates, user experience, and cost reduction.

Embracing VRPs in Your Business

Yapily remain at the innovation forefront, from our extensive coverage to the cutting-edge solutions we offer. It was the first open banking platform to make Commercial VRP a reality alongside Ant Group and Hungry Panda. Commercial VRP is definitely one to watch for e-commerce payments moving forward!