The Power of VRPs for credit and lending organisations
As financial services continue to evolve, financial institutions like Moneyline and Custom Credit are leading the way in harnessing open banking to enhance payment flexibility and improve customer experience. These Community Development Financial Institutions (CDFIs) are leveraging the capabilities of open banking to better serve underserved communities and provide more flexible financial solutions.
One such solution transforming the payment landscape is Variable Recurring Payments (VRPs). This innovation is helping lenders, banks, and credit unions not only streamline their payment processes but also offer customers more control over their repayment schedules and amounts. In this blog, we explore how VRPs are unlocking new opportunities for lenders, enabling real-time payments, securing interest rates, and providing flexibility in loan repayments.
What are VRPs?
Variable Recurring Payments (VRP) represent the next step in the evolution of recurring payments. Unlike traditional payment methods such as direct debits, which are rigid in terms of amount and schedule, VRPs offer much-needed flexibility. This payment option is powered by open banking APIs, enabling payments to vary in amount and frequency while maintaining robust security.
For lenders, this translates to more adaptable payment solutions, enabling customers to manage their loan repayments, savings contributions, or interest adjustments dynamically, without losing the consistency of recurring payments.
A particularly innovative use case of VRP is ‘Sweeping‘, consisting in automating the movement of money between accounts held by the same person – also known as ‘Me-to-me’. It functions as a modern alternative to direct debits, offering the precision and agility businesses need to meet their customers’ financial demands. Think of it as a “smart direct debit,” tailored for today’s digital world.
Here’s how it works:
- A customer sets up a Sweeping mandate, defining maximum parameters for payments—amount, frequency, and timing.
- Businesses initiate payments within these boundaries, ensuring they are seamless, fast, and secure.
- Payments are processed in real-time, with funds instantly transferred and correctly referenced.
How VRPs take sweeping further
Unlike rigid traditional systems, VRPs allow payments to adjust dynamically, offering better support for customer needs while maintaining control. While Sweeping focuses on account transfers, VRPs expand this capability across a broader range of payment use cases, providing businesses with tools to automate recurring payments for various scenarios.
For example:
- Loan repayments can fluctuate based on a borrower’s financial position.
- Pre-payments for energy or utilities can scale to match seasonal demand.
- Savings contributions can be increased or decreased as a customer’s income changes.
How VRPs benefit credit and lending organisations
- Real-time payment execution
With VRPs, payments are processed instantly. When a customer decides to lock in an interest rate or make an extra payment, the process happens in real time, eliminating delays and protecting the customer from market fluctuations. - Flexible repayments
VRPs allow payments to be tailored based on the customer’s changing circumstances. If a borrower faces fluctuations in income, they can adjust their repayment amounts accordingly, offering them greater control and making repayments more manageable. - Enhanced customer experience
The ease of setting up and modifying VRPs improves the customer experience. By removing friction from the payment process, customers can choose flexible schedules that align with their financial situation, ensuring they never miss a payment. - Cost savings for businesses
VRPs reduce the need for intermediaries, cutting down on transaction costs. This allows financial institutions to retain more of their revenue, improving profitability while offering customers more competitive rates and terms. - Enhanced security
Every VRP transaction is authorised through Strong Customer Authentication (SCA), ensuring that payments are secure and fraud-resistant. Both businesses and customers retain complete control over their payment settings, making the process transparent and trustworthy.
VRPs in action: a practical example
Imagine a borrower who wants to lock in a low-interest rate on a personal loan. With open banking and VRPs, they can:
- Instantly set up a payment to secure their interest rate.
- Future payments are automatically adjusted according to pre-agreed terms, without requiring new authorisations.
- The lender benefits from immediate payment confirmation, reducing administrative workload and enabling them to focus on delivering better customer service.
Why VRPs outperform traditional payment methods
| Feature | Direct Debit | Variable Recurring Payments (VRPs) |
| Payment flexibility | Fixed amounts only | Dynamic, adaptable to needs |
| Setup time | Can take days | Instant setup and approval |
| Real-time processing | No | Yes |
| Transparency / Oversight | Limited visibility | Full payment tracking and control |
| Security | Moderate | Strong Customer Authentication (SCA) |
The future of Lending: Open banking-powered
As the financial services industry continues to evolve, embracing open banking solutions like VRPs is no longer just a trend—it’s becoming an essential strategy for staying competitive. With these technologies, lenders can offer their customers:
- Build stronger relationships with customers through increased transparency and flexibility.
- Streamline payment processes, which helps reduce costs and administrative burdens.
- Maintain agility in a fast-paced market, allowing them to adapt quickly to customer needs and market changes.
Adopting VRPs and other open banking tools can significantly transform how lenders manage their payment systems, making them faster, more secure, and adaptable to the needs of their customers.
Ready to unlock the potential of VRPs?
At Ordo, we offer cutting-edge open banking solutions designed to empower credit and lending organisations to improve operational efficiency and customer satisfaction. Explore how VRPs and other open banking capabilities can elevate your payment processes. Contact us to learn more!