New payment methods pose £1.5bn cost savings opportunity for UK businesses
Plaid, an open banking network and payments platform powering digital finance, has found that UK businesses could save over £1.5bn annually in payment processing fees with the help of a new form of open banking payments, Variable Recurring Payments (VRP). As part of its efforts to help firms realise the benefits, Plaid has launched its own VRP product to make online payments work better for people in the UK and enable future recurring transfers between accounts of the same owner with one authorisation.
Used in place of existing options like direct debits and card-on-file, VRP allow businesses to authorise future payments directly from a bank account with one authorisation, giving them access to instant settlement and the option to customise customers’ payment experience, such as one-click purchases, while also minimising fees.
The Competition and Markets Authority (CMA) has mandated VRP for use cases where money is automatically moved between bank accounts held in one person’s name, also known as sweeping or me-to-me payments. For example, moving excess funds from a low-interest current account to a high-interest savings account or topping up a current account with a low balance to avoid hefty overdraft fees. As part of the current mandate, banks must also allow open banking companies like Plaid to access APIs for sweeping at no cost.
Expensify, a payments super-app that helps individuals and businesses around the world simplify the way they manage money, is among the first customers for Plaid’s VRP product. With Plaid’s VRP, Expensify can automatically pull varying repayments from their customers’ business accounts to settle card balances.
“When we set out to launch the Expensify Card in the UK, we chose to partner with Plaid because VRP are the best way to securely and quickly move money in the UK,” said Sophie Pinto-Raetz, who’s leading up the charge to launch the Expensify Card in the UK. “Our aim is to bring the Expensify Card to the UK as quickly as possible, while maintaining the same industry-leading standards as our US version of the card: a direct and seamless integration with the Expensify app, easy options to automate card payment, and transparency throughout the entire expense and preaccounting process. Plaid’s cross-Atlantic presence meant that we could unlock the value of instant payments more quickly with one provider. By partnering with Plaid for VRP, we’ll be able to introduce the Expensify Card to our UK customers much sooner than it would otherwise be available.”
Beyond sweeping, VRP encompasses a wider set of potential use cases beyond those in the CMA’s mandate, such as managing active subscriptions or paying utility bills. In a new report, a Plaid data analysis found that if VRP is extended beyond the current mandated sweeping use cases and their low cost is protected, UK businesses could save as much as £1.5bn.
“As households and small firms grapple with rising costs, further developments of open banking tools can provide solutions that help improve productivity and reduce costs. Commercial VRPs can offer these efficient solutions and have an important role to play for businesses when it comes to reducing transaction costs. In turn, this can also indirectly help lower costs for consumers which could be valuable as the cost-of-living rises,” said Janine Hirt, CEO of Innovate Finance.
The report calls on policymakers to cap issuer fees at ten basis points to protect their position as a competitive alternative payment method. This would keep fees for VRP slightly lower than card payments’ interchange fees, which are limited at 0.2% for debit cards and 0.3% for credit cards.
“In just five years since its inception, Open Banking has helped to bring a tremendous amount of innovation in finance to the market. Commercial use cases for Variable Recurring Payments have the potential to revolutionise the way money moves between consumers and businesses. However, we need UK policymakers to step in and ensure that unfair pricing practices don’t dampen adoption and prevent increased market competition. With their help, the industry can help consumers and businesses realise the full benefits of this new payments option,” said Dan Morgan, European policy lead at Plaid.
The full white paper with Plaid’s research can be found here. More information about Plaid’s VRP product, can be found here.
