Variable Recurring Payments (VRPs) in the context of Open Banking refer to the ability for consumers to set up automated payments that can change in amount and frequency. These payments are facilitated by Open Banking APIs, which allow authorised third-party providers to access financial data and initiate transactions on behalf of the user. Here are some benefits of Variable Recurring Payments with Open Banking.
What is a Variable Recurring Payment?
A variable recurring payment refers to a type of financial arrangement where a specific amount of money is regularly withdrawn or charged from an individual’s account or credit card, but the exact amount may vary from one payment cycle to another. This contrasts with a fixed recurring payment, where the same predetermined amount is withdrawn at each payment interval.
Variable recurring payments are commonly used for services or products where the price can fluctuate based on usage or consumption. Some examples of situations where variable recurring payments might be utilised- include utility bills, subscriptions, and membership fees.
What are the benefits of Variable Recurring Payments with Open Banking?
Traditional recurring payments are often fixed in amount and frequency, which might not suit everyone’s needs. With VRPs, users can set up payments that vary in amount, such as utility bills that fluctuate based on usage. This provides greater flexibility to adapt to changing financial circumstances.
VRPs can be adjusted in real time based on the user’s financial situation. For example, if a user’s balance is low, the payment amount can be automatically adjusted to avoid overdraft fees or declined transactions.
VRPs can be used to facilitate personalised budgeting. Users can set up payments to align with their income patterns and financial goals. This helps in maintaining better control over spending and ensuring bills are paid on time.
Some VRP platforms might offer insights into bill payment patterns and suggest optimal times to make payments based on factors like due dates, discounts, or rewards programmes. This can lead to significant cost savings.
Reduced Manual Effort
Traditional bill payments often require manual intervention, such as logging into different accounts and making payments individually. VRPs automate this process, saving time and reducing the risk of forgetting payments.
Enhanced Financial Management
By using VRPs, users can gain a clearer overview of their recurring financial commitments. This enables better financial planning and management.
Open Banking APIs can provide a consolidated view of all VRPs and associated transactions across different accounts and financial institutions. This centralised view simplifies tracking and reconciliation.
VRPs generate data on spending patterns and bill payments, which can be leveraged by financial apps to provide actionable insights and suggestions for improving financial health.
Security and Control
VRPs initiated through Open Banking APIs are subject to user authorisation, enhancing security. Users have control over which third-party providers can access their financial data and initiate payments.
Innovation and Competition
The introduction of VRPs through Open Banking encourages innovation in financial services. Fintech companies can develop new tools and services that leverage VRPs to offer improved financial experiences.
It’s important to note that while there are many benefits to Variable Recurring Payments with Open Banking, users should also be cautious about the security of the third-party providers they authorise to access their financial data. Choosing reputable and trustworthy providers is essential to ensure the safety of their financial information.