On 15 August 2024, the Payment Systems Regulator (PSR) published the response to its December 2023 call for views which set out initial proposals on how to expand variable recurring payments (VRPs) into new use cases, through a Phase 1 roll-out.

The PSR sees real potential for open banking-enabled account-to-account payments to provide an alternative to card payments, both online and in person. As a first step towards this long-term goal, the PSR has been working closely with the open banking sector to expand and improve VRPs, which it believes can provide some of the functionality needed.

Call for views

In the call for views the PSR proposed:

  • A multilateral agreement (MLA) specifying the required functionality along with arrangements for pricing, dispute resolution and liability.
  • Using its powers to set the parameters for a central price for VRPs. This would be based on a cost recovery model for the sending firm that would apply the PSR’s previously published pricing principles and enable sending firms to cover relevant marginal costs. The PSR provisionally identified the Faster Payments charge as the only relevant cost for the initial rollout, which it proposed to remove for sending firms.
  • Setting at zero the price sending firms can charge payment initiation service providers (PISPs) for access to customer accounts and payment initiation if the PSR determines the Faster Payments charge to be the only relevant marginal cost for sending firms for the initial rollout, and if the PSR subsequently takes action to remove that charge for sending firms.
  • Mandating the participation of the nine largest banks in the UK in the MLA.

The call for views on these proposals ran from 18 December 2023 to 2 February 2024.

Response

In total, the PSR received 39 responses to its call for views.

In summary:

  • The PSR still thinks that the MLA could be an efficient way of managing relationships between sending firms and PISPs and in light of the concerns it will work closely with participants of the VRP implementation group to look at what specific rules and provisions an MLA should include and who might be best placed to operate it.
  • The PSR remains concerned that offering sufficiently strong financial incentives to motivate enough sending firms to offer access to VRP Application Programming Interfaces (APIs) could hinder or discourage wider adoption. It will continue to develop its thinking on whether mandated participation is necessary and how to identify firms it might mandate and will set out updated proposals in the autumn.
  • There was a wide diversity of views on how best to price API access for VRPs in Phase 1 and no single approach garnered wide support. The PSR will evaluate the suitability of alternative access prices or approaches, including those alternatives suggested by respondents. This includes price setting based on pricing models in other payment systems, pricing based on a cost-recovery approach, including an economic return for sending firms, a ‘black box’ approach and some form of arbitrated price. The PSR will also consider the potential effectiveness of interventions that do not establish a VRP API access price, such as price transparency or reporting requirements. The PSR will update stakeholders on its analysis when it publishes updated proposals for consultation in autumn.

When the PSR publishes updated proposals, they will include the:

  • Specific rules and provisions an MLA should include – if the PSR continues to believe that one is required.
  • Organisation the PSR thinks may be best placed to operate any such MLA.
  • PSR’s view on whether mandated participation may be required and whom it may mandate to participate in Phase 1.
  • PSR’s plans for determining a VRP API access price – if it decides this would be required.
  • Costs and benefits the PSR expects from any proposed intervention – if it decides that this would be required.