The Payment Systems Regulator (PSR) has published its response to a call for views on the expansion of variable recurring payments (VRPs) in the UK around key areas, including a multilateral agreement (MLA) and mandated participation.
Regarding coordinating expansion of VRPs via an MLA, the regulator reported that while it found support for greater coordination, some in the industry raised concerns around the need for an MLA and whether it should include a central price.
The PSR still believes that an MLA could be “an efficient way of managing relationships between sending firms and payment initiation service providers (PISPs)” and has promised to work closely with the VRP implementation group to look at what specific rules an MLA should include and who might operate it.
Its December call for views found support for some level of mandated participation, but also a suggestion that the PSR should not focus only on the CMA9.
Kate Fitzgerald is chair of the VRP Working Group and head of policy at the PSR
While the PSR has said it agrees with this, it still thinks “a sufficiently large number of consumer accounts supporting VRPs is crucial to Phase 1’s success”.
On pricing principles and possible price intervention, more respondents than not supported the need for some form of central price.
However, the regulator reported that there were “mixed views” on how best to price Application Programming Interface (API) access for VRPs in phase one and has confirmed it will evaluate different pricing approaches, including those suggested by respondents.
Among the pricing approaches suggested are 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 intends to share a set of updated proposals for stakeholder comment in the Autumn and, at the same time, will publish a draft cost-benefit analysis to accompany these proposals.
Its updated proposals will include the specifics rules and provisions an MLA should include, the organisation it thinks is best placed to operate any such MLA, its view on whether mandated participation may be required and who it might mandate to take part in phase one, as well as its plans for determining a VRP API access price, should it be required.
Kate Fitzgerald, head of policy at the PSR, said: “More than 10 million consumers and businesses are benefitting from Open Banking in the UK.
“Our call for views response aims to provide the transparency around what’s needed to make sure Open Banking keeps growing, delivering new financial opportunities and services that increase choice and flexibility for consumers.
“This is an important step in keeping up momentum to expand the use of VRPs. We’ll continue to work closely with the ecosystem to ensure this happens effectively and identify where regulation will have the most impact – promoting competition and driving better value and outcomes for consumers.”
Industry reaction
Henk Van Hulle, chief executive officer of Open Banking Limited, said the PSR’s response to its call for views will give the industry “transparency and clarity” on the future expansion of VRPs.
Henk Van Hulle, chief executive officer of Open Banking Limited
“We fully support the view that the best way to expand VRPs beyond the CMA Order is the development of a rulebook, scheme or multilateral agreement as the most appropriate vehicle to achieve cross-industry coordination,” he said.
“VRPs are an obvious area for development but should be seen as the first of many innovations that are needed to realise the full value of Open Banking to the UK economy and its citizens.”
He added: “We also welcome the PSR’s commitment to explore different approaches to pricing. It is important from the outset that all parties see incentives for their business and how pricing is likely to evolve across the planned VRP rollout.
“It is critical that work done in the coming months supports the development of future use cases above and beyond VRP and payments to deliver a model that is scalable for future data-sharing propositions.”
However, Tom Burton, director of external affairs and public policy at GoCardless, said that with the regulator promising a further update in Autumn, the Open Banking “can” has been “kicked down the road once again”.
“Banks, fintechs and UK businesses need urgency and certainty from the PSR in order to invest in the rollout of variable recurring payments.”
Burton added: “On the plus side, it’s great to see the PSR has listened to our feedback and departed from some of its initial proposals. [The] statement suggests a regulatory intervention that balances stick and carrot is likely to be required – one that forces banks to support VRPs, whilst also rewarding them for supporting innovation by charging payment providers like GoCardless.
“We strongly support this in principle and look forward to contributing to the PSR’s work to establish an appropriate pricing model.”
‘Exploring Variable Recurring Payments: How can a truly commercial model work and be delivered?’ is one of the panel debates at Open Banking Expo UK & Europe on 15-16 October. Find out more and get your ticket here.
