Two UK financial organizations are planning to establish an independent firm, Open Banking Limited, designed to foster the adoption of variable recurring payments (VRPs).
The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) said that Open Banking will operate as an independent central entity and aims to launch live services as early as this year.
Variable recurring payments are payments made by businesses and consumers to utilities, government agencies, and financial institutions. Open Banking Limited’s goal will be to create a platform that allows payors to adjust the amount and timing of these transactions.
A better VRP system gives users much more control and reduces the chance of unexpected payments. For businesses, the platform could lead to lower processing costs and more efficient settlements.
Broader Adoption of VRP
A dedicated VRP organization is the latest effort in advancing the broader adoption of open banking in the UK. The country recently released its National Payments Vision whitepaper, outlining plans to accelerate the adoption of the open banking model.
In the whitepaper, the FCA was tasked with leading efforts to establish a stronger regulatory framework for open banking. According to Electronic Payments International, the organization’s endeavors have been successful so far, with over 11.7 million active UK open banking participants and more than 22.1 million open banking payments processed each month.
Laying the Groundwork
The UK is not alone in its open banking efforts. In the U.S., the Consumer Financial Protection Bureau recently announced the activation of Section 1033 of the Dodd-Frank Act, which is designed to lay the groundwork for an open banking system. The rules are intended to put consumers in control of their financial data and give them the freedom to shop around for the best financial products.
Freedom of choice, lower transaction costs, and faster payments are three of the key tenets of the open banking model that many consider to be the future of banking. As more governments prioritize the model, financial institutions, businesses, and consumers will begin to understand the benefits and open banking adoption will accelerate.
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