Every year, businesses lose billions to a problem that shouldn’t exist.
Customers don’t cancel their subscriptions, their payments do. A card expires. A bank flags a transaction as fraud. A Direct Debit fails because there aren’t enough funds that day. It doesn’t matter how good the product is; if the payment fails, the revenue is gone.
The numbers are staggering: failed payments cost the global economy $118.5 billion annually. Up to 48% of subscriber churn is caused by failed transactions, not customer choice. For subscription businesses, involuntary churn alone wipes out 9% of yearly revenue. It disrupts cash flow and forces businesses to spend more on reacquiring lost users.
Turn the table and you realize this isn’t just a business problem. Customers suffer too.
Subscriptions charge us even when we don’t use them. Gym memberships debit our accounts whether or not we show up. Streaming services bill us even when we haven’t watched a single episode in months.
For decades, recurring payments have been dumb. You sign up for a service, authorize a standing order or direct debit, and the money disappears at the same time every month, whether or not you still use the service. If your balance is low? Failed payment, penalty fees, or an awkward call from your service provider.
VRPs fix this. They are like direct debits, but smarter. They allow businesses to collect payments only when necessary and within an agreed limit, giving consumers better control over their spending.
Now imagine instead of blindly pulling N10,000 every month, your gym could charge only for the days you actually show up (which, let’s be honest, isn’t as often as you planned in the last 3 months). Your electricity provider could bill based on your usage, rather than a fixed estimate, and your Netflix subscription doesn’t drain your account even when you forgot you had it.
With VRPs, payments become truly flexible. No more expired cards ruining subscriptions, or unnecessary debits when your balance is low. No more businesses losing money over technicalities. Instead, payments adapt to real life, giving businesses predictable revenue while ensuring customers only pay when it makes sense.
Sounds good, right? But before we all start celebrating, let’s take a step back and ask: What are Variable Recurring Payments, and how do VRPs actually work?
What are Variable Recurring Payments (VRPs)?
To understand Variable Recurring Payments (VRPs), let’s start from the beginning: where it came from, who’s pushing it, and why it’s even a thing.
VRP is the brainchild of the UK’s Open Banking Implementation Entity (OBIE), a body set up by the UK Competition and Markets Authority (CMA) in 2017 to drive open banking adoption. If open banking was about giving customers control over their financial data, VRP is about extending that control to how payments happen.
Before VRP, recurring payments were either direct debits or card-based subscriptions, both of which had massive flaws.
Direct debits are rigid. You set them up, and they pull the same amount at the same time every period, whether you need it or not. Good for billers, but not so great for consumers.
Card payments are unreliable. Expired cards, fraud flags, and insufficient funds break transactions and cost businesses billions.
So, the OBIE decided there had to be a better way. The idea was simple: What if recurring payments could be dynamic, flexible, and directly linked to customers’ bank accounts, without relying on cards?
By 26th July 2021, the UK’s CMA mandated banks to implement VRPs for sweeping payments, essentially allowing people to move money between their own accounts automatically.
But the real excitement started when regulators and fintechs pushed for commercial VRPs, allowing businesses to collect payments dynamically. Suddenly, the world saw a future where subscriptions, bills, and even pay-as-you-go services could be processed seamlessly, without the inefficiencies of traditional payment rails.
At the forefront of this shift are fintechs like Token and Yapily, which are actively building VRP solutions.
Banks, predictably, weren’t thrilled at first, after all, VRPs could disrupt their lucrative card payment fees. But with regulatory pressure and industry-wide adoption picking up, it’s becoming clear: VRPs aren’t just an experiment. They’re the next evolution of payments.
Also read: 7 ways the new US Open Banking regulation outshines the UK’s
How do Variable Recurring Payments actually work?
Alright, enough theory. Let’s break this thing down properly; how does VRP actually work, and why is it so different from direct debits or card payments?
At its core, Variable Recurring Payments is a smarter way to automate payments. Instead of setting up a fixed debit instruction that pulls money no matter what, VRP allows businesses to collect payments within pre-agreed limits: amount, frequency, and duration. Think of it as a “controlled autopilot” for payments.
Here’s how it works step by step:
1. Customer gives permission
Everything starts with consent. A customer agrees to let a business collect payments from their bank account, but with clear, flexible rules:
- The maximum amount that can be debited per transaction.
- The maximum total amount that can be debited over a period (e.g., monthly).
- The timeframe for which the consent remains valid.
This means no more shady auto-renewals or hidden charges. Customers stay in control while businesses get predictable payments.
2. The business requests payment
When it’s time to collect money, the business sends a payment request to the customer’s bank via an Open Banking API. This request is dynamic, meaning the amount might change based on real usage.
- Your electricity bill? Charged based on actual consumption.
- A cloud storage subscription? Adjusted if you use more or less space.
- A gym membership? You pay only for the days you actually went.
No more paying for stuff you didn’t use.
3. The bank checks the rules
Before approving the transaction, the customer’s bank checks if the request meets the agreed limits.
- Did the business request more than what the customer approved? Declined.
- Is the total amount still within the cap? Approved.
- Is the request within the validity period? Proceed.
Unlike direct debits, where banks blindly process payments unless you manually stop them, VRP ensures every debit follows the rules set by the customer.
4. The payment is processed in real-time
Once approved, the payment happens instantly. Since VRP runs on bank-to-bank transfers via Open Banking APIs, there are no card networks involved, meaning:
- No failed payments due to expired cards.
- No unnecessary fraud declines from overzealous banks.
- Lower transaction costs for businesses (bye-bye, card fees!).
The result? Customers don’t lose access to services because of payment failures, and businesses don’t lose revenue due to technical glitches.
5. The customer can cancel anytime
Customers can cancel VRP agreements anytime without needing to call customer service or send a million emails. This is a huge win for consumer protection. Unlike traditional recurring payments that lock you in and make cancellation difficult, VRP puts customers in control.
So, in a nutshell, VRP makes payments:
- More flexible – Businesses only charge when necessary.
- Reliable – No more failed transactions due to expired cards.
- Cost-effective – No middlemen like Visa or Mastercard taking a cut.
- Transparent – Customers know exactly how much can be deducted and when.
It’s everything direct debits should have been but never were.
Also read: How Open Banking Can Transform Payments in Nigeria
Real-world implications of Variable Recurring Payments
Like every shiny new payment innovation, VRP isn’t perfect. It promises a world of seamless, intelligent transactions, but in reality, there are trade-offs. Some businesses will love it. Some will hate it. And for consumers? Well, it depends on which side of the transaction you’re on.
The upsides of using VRP
1. Goodbye failed payments, hello revenue stability
Businesses lose billions to failed payments every year. Cards expire. Banks block transactions. Customers forget to update their billing details. VRPs solve this by linking payments directly to bank accounts, eliminating card-related failures. If you’ve ever had your Netflix subscription canceled because your card expired, you already see the value here.
2. Better cash flow, fewer chargebacks
For businesses, cash flow is everything. Direct debits can take days to process, and card payments can be reversed by chargebacks. VRPs? Instant or near-instant settlement with no middlemen eating into margins. No chargebacks, no delays, no-nonsense.
3. More transparency and control
Unlike direct debits, VRPs are flexible. Customers can set spending limits, track payments in real time, and revoke access at will. No more surprise deductions or companies holding on to your money “by mistake.”
4. Smarter payments
Imagine a world where your gym only charges you if you show up. Or your cloud storage provider adjusts your bill based on your usage. VRPs turn payments into a dynamic, usage-based model, which feels way more fair than blindly charging people the same amount every month.
Why VRP might be a hard sell
1. Banks will drag their feet
Let’s be honest, banks make serious money from failed transactions, overdrafts, and card fees. VRPs cut them out of the loop. They won’t roll over easily. Just look at how long it took banks to properly implement open banking in the first place. Expect delays, resistance, and a lot of “we’re working on it.”
2. Customer trust could be an issue
People don’t trust businesses with their money, especially in places like Nigeria, where surprise deductions are practically a national sport. Would you give a company ongoing access to your bank account, even with limits? Adoption will depend on whether customers feel in control.
3. Not every business model works with VRPs
Some businesses thrive on fixed recurring revenue. Gym memberships, SaaS subscriptions, and insurance companies like the predictability of charging a fixed amount monthly. If payments become usage-based, some industries might struggle to adapt.
4. Regulatory uncertainty
VRPs work well in markets with strong open banking regulations, like the UK. But in Nigeria? Open banking is still in its infancy, and regulators are notoriously slow to approve new payment models. Without clear frameworks, adoption could stall before it even begins.
How long do you think it will take before they truly change the way we pay?
Payments don’t evolve overnight. If history has taught us anything, it’s that even the best ideas take time to catch on.
Think about card payments. Nigeria got its first ATM in the late ‘80s, yet cash is still king today. Mobile money? M-Pesa launched in Kenya in 2007, but Nigeria is just getting serious about wallets and agent banking. Even direct debits, arguably the closest cousin to VRPs, are still clunky, expensive, and barely used by everyday people.
So, will VRPs suddenly take over and kill cards, direct debits, and standing orders? Not likely. At least, not in the short term. But here’s what’s clear:
In markets where open banking is mature (like the UK), VRPs will grow fast because regulators and banks are already on board.
For Nigeria and most of Africa, adoption will be slow, not because VRPs aren’t great, but because infrastructure, regulation, and user behavior need to catch up.
Banks and fintechs will resist at first. Why? Because VRPs shift power to consumers, reducing hidden fees and making payments more transparent. That’s a threat to traditional revenue streams.
But the shift is inevitable. Customers will demand better payment experiences, and businesses will follow the money. It may take 5-10 years before VRPs become mainstream in Nigeria, but when they do, expect payments to feel less like a battle with your bank and more like something that just works.
