Author: Charles Damen, Chief Product Officer, Token
Variable Recurring Payments (VRP) are a major step forward for payments and the wider Open Banking movement. In July 2022, the CMA9 banks were mandated to introduce VRP for sweeping. Yet, this use case is only one of many game-changing possibilities – including VRPs for so-called non-sweeping services.
Against this backdrop, we wanted to help the industry better understand how payment service providers (PSPs), merchants and banks will view this new development. For the second consecutive year, in partnership with Open Banking Expo, Token has conducted a comprehensive industry survey to gauge the industry’s attitudes on Variable Recurring Payments and the future of payments.
Understanding the VRP Opportunity
VRPs for non-sweeping services can address two key areas of opportunity.
The first is VRPs as a potential replacement for direct debit. The second is replacing card-on-file with VRPs, and using Variable Recurring Payments to put Open Banking payments behind e-commerce “Buy Now” buttons.
Our survey reveals that the latter — VRPs for frictionless e-commerce, e-commerce payments — is where the industry’s focus really is today. Actively converting direct debit to VRP was not seen as a very strong driver by survey respondents this year, which is a change from last year and even more of a change from when VRPs were originally introduced and most were seriously looking at the direct debit opportunity.
Perhaps this is because, although it certainly has its challenges, Direct Debit is a low-cost form of payment. However, you cannot see if a Direct Debit mandate has been withdrawn, which is a significant downside. When a transaction fails, a merchant or service provider may only realise after they have already sent an item or delivered the service. There remains great potential for VRPs to address this challenge by offering immediacy of payment and showing when a consumer has withdrawn a mandate.
Growing appetite for standardisation
Another key finding of the survey was that two-thirds of survey respondents believe that there should be standardised fee structures for VRPs, and 80% of survey respondents indicated there should be standardised contract frameworks. We also found that respondents also had a strong view that regulators should also set a maximum fee that banks can charge for VRPs.
While these issues are currently being debated and negotiated across the industry, including during last week’s Open Banking Expo event in the UK, there is now general acceptance that, for the first time during our Open Banking journey, VRPs will bring banks into a position where they are incentivised and able to monetise this new form of payment, as well as future forms of premium APIs.
Defining the future
We are currently defining the next phase of Open Banking in the UK and Europe, and VRP serves as the starting point for the new premium models that will emerge from related industry-wide efforts. Premium APIs give banks many revenue driving opportunities, such as introducing a new API for passport verifications to facilitate onboarding and making this a chargeable event. There are also many types of assets that banks can monetise through APIs.
Interest in VRP has grown significantly over the past twelve months. However, there is still only one bank really advocating and promoting VRP for non-sweeping services. NatWest has made APIs for VRP available, developed a contract role, and started charging for VRPs, which is all very encouraging. Now, other banks need to follow suit.
The interest in VRP revealed through this survey should encourage more banks to jump on the bandwagon and define the models that will help them to monetise VRP and premium APIs.
Regulators have been very outspoken about the need for an alternative form of payment, which means now is the time for banks to act. Wait too long, and regulators may step in to force action.
Banks that move now can benefit from the learnings of other institutions and grow the models they can implement for a new API economy.
Where are we headed?
At last week’s Open Banking Expo UK in London, I was thrilled to announce that Token can now enable VRP for sweeping services across all major UK banks. We are also entering into an agreement with NatWest to enable VRP for non-sweeping services, with other banks to follow.
At the same time, Token remains heavily involved in defining the future of Open Banking in the UK within the Strategic Working Group and its Steering Committee.
We are also involved with the definition and the completion of the SEPA Payment Account Access (SPAA) scheme rulebook, which sets the framework for open finance and the future of open banking payments in Europe, where Dynamic Recurring Payments (DRP) are particularly exciting. We see a lot of interest from our PSPs in the provision of DRP functionality, which provides very similar functionality to VRP, and we hope that DRP will be the key MVP of the SPAA rulebook.
Want to increase positive customer purchasing experiences? Let’s talk IVR
Andy Watts, Senior Account Director, Financial Services, at Odigo
For many years, debit and credit cards have reigned supreme, with the latest figures showing that in just the month of August, there were 2.47 billion debit and credit card transactions. While this is unlikely to change any time soon, the way we pay has.
The popularity of paying ‘in person’, using chip and pin, has reduced significantly while paying online has skyrocketed. Nevertheless, during the highs and lows of this journey, making payments over the phone – using interactive voice response (IVR) – has remained.
When it comes to credit, debit and digital payments, the lack of physical cash can sometimes add an abstract layer to the purchasing experience. Resulting in some customers lowering their guard when it comes to financial fraud and risk, and the same goes for Interactive Voice Response (IVR) payments.
To combat this, businesses need to actively ensure their contact centres are internally remaining compliant with security standards when it comes to the data flowing around the contact centre, as well as tackling the external lack of IVR awareness among their customers.
Fighting fraud from the inside
During the pandemic, the fear of fraud and breaching data security increased, as contact centre agents were required to work remotely. It’s fair to say, remnants of that fear still remain given the increase in spoofing scams, other types of fraud and hacks.
However, hope is far from lost. Different elements of these risks can be mitigated through the Payment Card Industry Data Security Standard (PCI-DSS). This global technological and operational standard aims to drive the adoption of data security standards for safer payments, including IVR payments. Providers that commit to the standard need to get involved in the protection of their customer’s data while it’s in storage, processing and transmission. As well as also regularly testing and monitoring their networks and maintaining a vulnerability management program.
Unsurprisingly, customers want to be assured of accurate, safe transactions and that organisations will follow through on their commitments to goods or services. Contact centres need to continue to adhere to operational standards to ensure compliance and security, and ensure they ramp up education and awareness around the risks of IVR payments. All in an effort to reassure their customers and enable them to have the smoothest and safest customer experience.
Ensuring education from the outside
The contact centre is the epicentre of personal customer data. Contact centre agents regularly pull up and use insights from the data accumulated to amplify customer understanding and add to new data points based on continuous customer interactions. To ensure a continuously high-quality customer purchasing experience, when using IVR payments, an awareness of the importance of data security – by both agent and customer – is crucial.
IVR payments are almost always fully automated for 24/7 self-service and are expertly tailored to suit the customer and business needs. In reality, this translates into customers slowly being guided through a process of intuitive phone menus and additional information to ease any fears of fraud and other anxieties they may have.
Information about the process of IVR payments, how to spot fraud attempts and how to best secure data must be readily available for customers. If this is not already being provided by contact centres, then businesses need to re-evaluate their processes, sooner rather than later. Agents should be actively educating customers and information should be readily available via FAQs pages and chatbot functions.
While IVR payments remain a popular payment method for customers, contact centres need to ensure they are internally operating to the highest security and compliance standard possible. By securing their data in transit and storage whilst simultaneously ensuring ease for agents to utilise the data to continue providing meaningful CX. All of which can reduce customer anxieties around potential fraud and increase awareness around the risks of IVR payments, while delivering high quality and seamless customer purchasing experience.
E-commerce marketplaces have become more than third-party platforms
By Luke Trayfoot, CRO, MANGOPAY
E-commerce marketplaces have become an essential driver of e-commerce growth. As found by Ascential in their annual Future of Marketplaces Report, by 2027, third-party sellers using marketplaces will capture 59% of global e-commerce sales. A trend accelerated by the pandemic. Marketplaces are helping more brands cater to the ever-changing needs of consumers.
As businesses are continually being challenged to provide a seamless shopping experience, marketplaces can support this venture. Without the added costs of warehousing, supply chain and logistics for additional products, marketplaces can help to alleviate some of those pressures, especially as consumer demand grows.
Now, marketplaces need to further evolve their offering through payments infrastructure, whilst remaining compliant with payment regulations.
The marketplace offering – lowering barriers to entry
Beyond access to the best deals, seamless checkout and quick deliveries, marketplaces also exceed consumer expectations for an intuitive one-stop shopping experience. Through marketplaces, retailers can continue to evolve their proposition, collecting data on what their customers want and need and continually refining their offerings at the right time and in the right place (web/app).
Marketplaces can also support businesses entering new markets or competing with bigger players in their respective fields. Entering a marketplace network allows small businesses to quickly gain influence, benefiting from larger audiences and quickly generating high sales volumes.
With multiple sellers, many with an international presence, implementing a sophisticated payments environment is much more complex than building one for an e-commerce website. Trading globally has different rules and regulations to adhere to per country which means payments environments must be multi-layered, accepting various forms of payments, which can be an inhibitor to businesses scaling at pace. Marketplace’s innate customer-centredness must be maintained end to end, including the purchase journey, so a sophisticated environment is essential.
Building the right payments environment
A crucial part of the customer experience, it is important that merchants provide a choice of payment methods at checkout. As payments have evolved, marketplace operators should consider what options they provide to sellers, and subsequently, their end consumers.
The number one expectation is of course payment security, which is a key step in building a long-term relationship based on trust. Increased control points, however, generally means more friction being introduced into the payment process, so this is a balancing act.
As the retail landscape continues to grow, so does competition and as new players enter the market, businesses must find new ways to innovate, and the creation of payment options is one of the most important avenue to do so.
Considering regulation at every step
Increased marketplace activity has led to the introduction of regulation for the platform economy. In the UK, HMRC has implemented changes to VAT reporting requirements for digital marketplaces and their third-party sellers, especially for overseas sales. Across Europe, KYC (Know Your Customers) regulations intended to protect customers from data breaches on a marketplace and identify the persons (legal or natural) with whom the marketplace does business, as part of anti-money laundering and terrorist financing directives, have also been enacted.
As online platforms continue to play an increasingly significant role, the implementation of the Digital Services Act supports creating a safer, online experience for citizens. This regulation enables the expression of ideas, communication, and online shopping by reducing exposure to illegal activities and dangerous goods. Regulation can seem extremely daunting, especially for those looking to enter the market. However, its purpose is to protect both the business and users.
Marketplaces need to work with payment infrastructure specialists that can support providing methods for local users, as well as options that are familiar and trustworthy for a global audience. Additional flexibility also needs to be built in to adapt to different demographics to ensure that a variety of consumers are appropriately catered for. If a brand wants to establish itself in a new market, varied payment methods are not a nice to have, but a must.
Despite the current economic climate, global e-commerce will continue to grow in the years ahead. Those that will be able to stay ahead of the curve will ensure that their customers’ experience is balanced with greater choice and varied payment options, in tandem with regulatory compliance.
Want to increase positive customer purchasing experiences? Let’s talk IVR
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