Financial regulators in the UK are set to roll out non-sweeping variable recurring payments (VRP) in a Phase 1 implementation by the third quarter of 2024, marking a significant advancement for open banking.
The Joint Regulatory Oversight Committee (JROC), co-chaired by the FCA and the Payment Systems Regulator (PSR), has responded to a VRP working group blueprint that proposes the introduction of non-sweeping payments—recurring transactions between customers and businesses. This blueprint, delivered in October, highlights payments to regulated utilities, financial services, and government bodies as potential initial use cases for VRP and open banking payments.
Key issues remain, including the need for formal dispute resolution mechanisms to address payment errors and cases of biller insolvency, as well as establishing a suitable commercial model. The JROC is urging Pay.UK and Open Banking Limited (OBL) to lead implementation groups responsible for enhancing functionalities and creating the necessary dispute resolution framework for both consumers and businesses ahead of the VRP launch next year.
In terms of the commercial model, regulators have recognized the necessity of a multilateral agreement between Payment Initiation Service Providers (PISPs) and sending firms. This agreement aims to facilitate market access and reduce costs associated with bilateral arrangements. The JROC has noted significant discrepancies among market participants regarding the establishment of appropriate pricing for these services.
To foster progress, the PSR is conducting a consultation to define parameters for a central price for VRPs, employing an incremental cost recovery model for sending firms.
The co-chairs of the JROC, Chris Hemsley, managing director of the PSR, and Sheldon Mills, FCA executive director for Consumers and Competition, stated, “The open banking ecosystem has collaborated effectively to achieve this progress. We anticipate that consumers and businesses will soon benefit from innovative payment solutions on a broader scale.”
Additionally, the JROC’s end-of-year report addresses the future structure of the new oversight organization for open banking in the UK. The Committee emphasizes that this future entity will play a crucial role in the success of Open Banking, with decisions regarding its governance and funding model expected early next year. An announcement detailing the Committee’s determinations and the next steps for establishing this entity will be made in the first quarter of 2024.