As Europe consolidates instant payments, could VRP disrupt the party?

News that the European Payments Initiative (EPI) purchased the Netherlands’ successful domestic instant payment player iDEAL – as well as Belgium’s equally successful Payconiq – came at the same time as the European Parliament looks set to pass legislation designed to standardise and harmonise instant payments across the bloc.

Could VRP disrupt the party?

Both the EPI and European Parliament appear to be pulling in the same direction, namely the creation of a single instant payment solution across the bloc.

The European Payments Council is also proposing to introduce a “confirmation of payee” service to combat payments fraud.

As ever, the thinking behind the EU’s moves is plausible, albeit somewhat out of kilter with reality, since the development of instant payments across Europe is so patchy – and could now be superseded by Variable Recurring Payments (VRP) over the next few years.

Buy your way out of low adoption

At the most recent count, somewhat less than two-thirds of Europe’s banks offer SCT-Inst as a payment method, and less than 15% of funds are transferred using the system.

The impending legislation therefore represents an attempt to force banks to use the system, rather than domestic alternatives.

At the same time, the purchase of iDEAL and Payconiq by the EPI could see these systems harmonised, then offered to other banks in the EPI and across Europe.

All of which is fine, in principle – but risks ignoring the dynamics of the instant payments market.

A new survey from Token.io, for instance, shows that Variable Recurring Payments (VRPs) could be more popular than simple instant payments – both for consumers and companies, and for retail and B2B transactions.

“The development of instant payments across Europe is patchy, and could be superseded by VRP.”

Token.io surveyed merchants and banks across Europe regarding the value they find in VRPs.

When asked to compare the benefits and disadvantages of commercial VRPs against other payment types, commercial VRPs come out on top in virtually every category, with 60% of merchants saying they intend to actively convert card payments to VRPs.

VRPs work via an Open Banking connection between the consumer or company and a retailer or other organisation, set up through the payer’s bank account.

Payments benefit from bank-level security on both ends.

To take the example of retail payments – either in-person or online – the consumer simply approves the amount to be paid which is then debited from their bank account or associated card.

Friction is reduced to zero, and security is much higher than PIN, OTP or other methods.

Users can also set maximum payment amounts via app, further reducing their exposure to fraud, and transfers are instant.

The UK appears to have stolen a march on the EU when it comes to VRPs.

Following their launch in early 2022, HSBC, Santander, NatWest, Nationwide, Lloyds and Barclays all offering a VRP service.

To date, however, consumer adoption is low, despite the improved security and convenience such payments offer.

In the EU, VRPs – or Dynamic Recurring Payments, as they are known – remain at the concept stage.

On 30 November, the EU will publish a rule-book for its SEPA Payment Account Access scheme (SPAA) – effectively setting out the basis through which banks across the bloc can offer VRPs.

However, if the roll-out of SEPA SCT-Inst is anything to go by, it could be several years before we see a workable VRP solution across the EU.

Payments Cards & Mobile Opinion:

From the perspective of market dynamics, one may question whether or not the EU’s legislating for future demand when the basic building-blocks for VRPs are still not in place represents a case of “cart before horse”.

Although consumer adoption of VRPs in the UK remains low, the system is at least in place – just as instant payments are for the Nordics, Netherlands, Belgium, Poland and other markets.

Attempting to drive changes in market and consumer behaviour through legislation is an interesting strategy: a better one might be to provide a service and drive demand for that service within existing frameworks such as PSD2.