Open Banking's Next Phase: Variable Recurring Payments Explained
Open banking is moving into a new phase this year, and the part worth understanding is Variable Recurring Payments (VRPs) — a technology that could quietly replace a lot of the direct debits and card...
title: "Open Banking's Next Phase: Variable Recurring Payments Explained" category: Tech & Open Banking date: 2026-07-09 tags: [open-banking, payments, fintech, vrp] image: https://picsum.photos/seed/open-banking-vrp-2026/2400/1350
Open banking is moving into a new phase this year, and the part worth understanding is Variable Recurring Payments (VRPs) — a technology that could quietly replace a lot of the direct debits and card payments you currently use without you noticing the switch.
What a VRP actually is
A VRP lets you authorise a company to take payments directly from your bank account on a recurring basis, within limits you set — an electricity company, for example, could trigger multiple account-to-account payments within pre-set limits, rather than taking a fixed amount every month like a traditional direct debit. Unlike a direct debit, a VRP moves money bank-to-bank instantly via open banking rails, cutting out card networks entirely.
Why 2026 is the pivotal year
Industry has agreed a first-phase commercial model for "commercial VRPs" (cVRPs), and the FCA expected the first live payments under the UK Payments Initiative scheme to start in Q1 2026. Wave 1 covered lower-risk use cases — payments to regulated financial firms, utilities, and government. Wave 2, now being rolled out, extends this to e-commerce, meaning you could soon see "Pay by Bank" as a checkout option at major retailers alongside card and PayPal.
Behind the scenes, the Payments Vision Delivery Committee published its Payments Forward Plan on 26 February 2026, setting central governance for the sector, and a new "Future Entity" is due to be established in Q3/Q4 2026 to become the primary UK standard-setter for open banking APIs, taking over from the current Open Banking Implementation Entity.
What this means for you as a consumer
Pay by Bank options typically carry lower fees for merchants than card payments, and some retailers pass a portion of that saving on as a discount for using it. It also removes the need to share card details with every merchant, reducing one common source of fraud exposure. On the flip side, because it's a newer system, dispute and refund processes aren't yet as mature or as legally standardised as the chargeback protections you get with a debit or credit card — so for large or risky purchases, a card still offers stronger built-in consumer protection for now.
Regulatory oversight is catching up
HM Treasury is expected to introduce legislation in 2026 giving the FCA new powers to set open banking rules directly, with a consultation on a Long-Term Regulatory Framework expected before year end. Until that framework is fully in place, VRPs sit in a slightly less mature regulatory environment than established payment methods — worth knowing if you're an early adopter.
How the UK compares internationally
The EU's PSD2 (soon to be succeeded by PSD3) established the legal basis for open banking across Europe years before the UK's VRP rollout matured, but the UK's Open Banking Implementation Entity has generally been credited with faster real-world adoption of account-to-account payment products. The US has no equivalent unified open banking mandate — initiatives like the CFPB's Section 1033 open banking rule are still being phased in and face ongoing legal challenges, leaving American consumers reliant on third-party aggregators like Plaid rather than a regulator-mandated standard. Australia's Consumer Data Right covers banking data sharing but has been slower to extend into live payment initiation than the UK's VRP framework.
What to watch for
- "Pay by Bank" checkout options appearing at larger online retailers through the second half of 2026.
- Lower merchant fees potentially translating into small discounts for using bank-to-bank payment.
- Weaker dispute protection compared with card payments until the regulatory framework matures — read the terms before using it for large purchases.
Key Numbers
- Q1 2026 — target start for live cVRP payments under the UK Payments Initiative
- 26 February 2026 — Payments Forward Plan published
- Q3/Q4 2026 — Future Entity for open banking standards expected to be established
Sources
- Open Banking Variable Recurring Payments: A UK Guide — Stripe
- Open Banking payments — industry proposal for cVRP — UK Finance
- UK's new Payments Forward Plan — Open Banking Expo
- Payment services and payment systems in 2026 — A&O Shearman
Educational content only — not financial advice.