Latest / Fintech Conversations with Fexingo: Banking, Payments, and Financial Software Companies / How Fintechs Use Variable Recurring Payments for B2B
Transcript
- Lucas: If these conversations are useful for what you're building or running, we're glad you're here. Today I want to talk about a payment mechanism that's quietly reshaping how businesses pay each other — variable recurring payments, or VRPs. Luna: VRPs — I've seen that acronym pop up a lot in open banking circles. But for most people, isn't a recurring payment just a direct debit? Lucas: That's the perfect starting point. A direct debit is a pull payment — the recipient pulls money from your account on a fixed date, usually a fixed amount. VRPs are different. They're also recurring, but the amount can vary each time, and the payer sets a maximum cap. Crucially, the payer authorises each individual transaction through their bank's app, even though it's recurring. Luna: So the payer stays in control, rather than the merchant just taking whatever they want. That sounds like a trust issue. Lucas: Exactly. And that trust mechanism is why VRPs are taking off in B2B — where invoices can vary wildly by month. Let me give you a concrete example. There's a uk based construction materials supplier called BuildRight — not the real name, but representative. They supply bricks, timber, and fittings to about 200 small contractors. Before VRPs, they'd send invoices with 45-day terms, and on average they got paid in 52 days. That's a huge cash flow drag. Luna: Right, especially for a materials supplier who has to pay their own suppliers on shorter terms. Lucas: Exactly. So BuildRight partnered with a fintech that offers VRP rails through open banking APIs. Now, each contractor authorises a VRP mandate with a cap — say, £50,000 per month. At the end of each week, BuildRight submits the actual amount due through the VRP, the contractor gets a push notification on their banking app to approve it, and the funds settle in seconds. Same day. Luna: Same day — that's a radical shift from 52 days. What's the adoption been like among the contractors? Lucas: About sixty percent of them opted in within the first three months. The ones who didn't were mainly concerned about giving a mandate at all — even with the cap. But BuildRight offers a small discount, 0.5 percent, for VRP users. That's enough to tip the scales. Luna: A 0.5 percent discount for getting paid in a day instead of two months — the economics work for both sides. Lucas: BuildRight's finance team told me their Days Sales Outstanding dropped from 52 days to 12 days for VRP customers. That's freed up roughly £1.2 million in working capital. Luna: And that's just one supplier. I imagine the model scales across industries. Lucas: It does. Commercial real estate is another interesting case. Think about a property management company that collects monthly rent from dozens of small business tenants. Each tenant's rent might be fixed, but service charges and utilities vary. With VRPs, the management company can submit the actual total each month, the tenant sees a breakdown in their banking app, approves it, and the payment flows instantly. Luna: That's a lot cleaner than the current system where tenants have to remember to pay a variable amount, or the landlord has to chase them. Lucas: Exactly. There's a real estate fintech called FlowRent — again, not the real name — that's built exactly this. They reported a 30 percent reduction in late rent payments within six months of rolling out VRPs to their portfolio. Luna: So what's enabling this technically? It's all open banking APIs, right? Lucas: Primarily. In the UK, the Competition and Markets Authority mandated that the nine largest banks provide open banking APIs by 2020. That created the infrastructure. VRPs are essentially a specific use case built on top of those APIs. But there's a regulatory evolution happening too. The European Union's PSD3, which is expected to come into force in late 2026 or early 2027, includes provisions specifically for VRPs. Luna: So regulators are actively encouraging this model. That's a powerful tailwind. Lucas: It is. And I think the killer feature for B2B is what the industry calls 'sweeping'. That's where a business uses a VRP to automatically move excess cash from a current account into a high-yield savings account or an investment product. The amount varies each day, but the business sets a target balance — say, £10,000 — and anything above that gets swept out. Luna: That's effectively a cash management service that used to require a treasury team. Now a fintech can offer it through an API. Lucas: Right. A company called CashPool — fictional name again — offers exactly that for small businesses. They use VRPs to sweep idle cash into money market funds. Their typical customer earns an extra 2.5 percent annually on cash that would otherwise sit in a zero-interest checking account. Luna: I want to dig into the differences between VRPs and direct debits a bit more. Because on the surface, they sound similar. Lucas: Good. The key differences are control and speed. A direct debit is a pull payment — you give the merchant authority to take money, and you can reverse it later. With a VRP, each payment is individually authorised by the payer through their banking app. That means the payer sees the amount and can say no. Direct debits also take three working days to settle through the Bacs system in the UK. VRPs settle in seconds. Luna: The instant settlement is huge for cash flow. But what about the cost? Direct debits are cheap — often a few pence per transaction. Lucas: VRPs are not free. The fintechs that offer them typically charge a flat fee of 10 to 20 pence per transaction, plus a small percentage — maybe 0.1 percent. That's higher than a direct debit, but lower than a credit card fee, which can be 1.5 to 3 percent. For B2B transactions, which often run into thousands of pounds, the percentage fee is negligible relative to the working capital benefit. Luna: So the ROI case is pretty clear for businesses that have cash flow constraints. Lucas: And for businesses that want to automate something they're currently doing manually. There's a story I heard from a small marketing agency that used to email PDF invoices, then chase payment by phone. They switched to VRPs for their monthly retainer clients, and they told me they saved about eight hours a month on invoicing. Luna: Eight hours — that's a workday. For a small agency, that's meaningful. Lucas: Exactly. And that time saving compounds. The agency owner said she used that day to pitch new clients, which brought in three new retainers within two months. Luna: I love that direct link between a payments feature and business growth. But I want to ask — what are the risks? If a payer authorises a VRP and later disputes the amount, what happens? Lucas: That's an area still being standardised. Under the UK's open banking framework, the payer can dispute a transaction within 13 months, similar to a direct debit guarantee. But the VRP provider and the merchant have to handle the dispute resolution. There's no central scheme yet like the Direct Debit Guarantee. That's a friction point. Luna: And it's probably why adoption hasn't been faster. We're in 2026 — VRPs have been talked about for a few years now, but they're still not mainstream. Lucas: True. But the trajectory is positive. In the UK, the CMA reported that VRP volumes grew by 340 percent in 2025, albeit from a low base. And with PSD3 coming in Europe, we'll likely see a similar push. I think the next big milestone will be when a major ERP system — like SAP or Oracle NetSuite — integrates VRP rails natively. Luna: That would be a game changer. If a CFO can set up VRPs from within their accounting software without needing a separate fintech dashboard, adoption could explode. Lucas: Exactly. There are already early integrations with Xero and QuickBooks in the UK, but they're limited to a few fintech partners. Full native support would be huge. Luna: And that's the kind of shift that could make VRPs the default B2B payment method within five years. Lucas: I think so. And it's not just a UK or European story. In Australia, the New Payments Platform already supports VRPs through its 'PayTo' system. The US is further behind because open banking hasn't been mandated federally, but we're seeing private initiatives like the Financial Data Exchange trying to standardise. Luna: So it's a global trend, but the pace is uneven depending on regulation. Lucas: Right. And this is a case where regulation is actually enabling innovation, not stifling it. The CMA mandate in the UK created the infrastructure, and private fintechs are building on top of it. Luna: We should also mention that a couple of dollars a month is genuinely what keeps these conversations going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Absolutely. That small support really does make a difference for us. And speaking of support, let's get back to the tech behind VRPs. Luna: Yeah, let's talk about the API layer. Because not all VRPs are created equal, right? Lucas: Right. There are two main types: 'sweeping' VRPs and 'bill payment' VRPs. Sweeping VRPs are the ones we discussed — moving money between accounts the same user owns. Bill payment VRPs are for paying third parties. The CMA in the UK has been pushing for a standardised 'sweeping' VRP API since 2023, but bill payment VRPs are still fragmented across different providers. Luna: So if I'm a merchant wanting to accept VRPs from customers, I might need to integrate with multiple banks or fintechs? Lucas: For now, yes. But there are aggregators like Token.io and TrueLayer that offer a single API to connect to multiple banks. They handle the complexity of different bank APIs, so the merchant only needs one integration. Luna: That's similar to how Stripe or Adyen aggregate card payments. So the model is proven. Lucas: Exactly. And the fees are lower than cards, which makes it attractive for high-volume, low-margin businesses. I spoke to a logistics company that uses VRPs to pay independent truck drivers. Each driver might get paid weekly, but the amount varies based on miles driven. Before VRPs, the company had to issue hundreds of bank transfers per week, which cost £2 each. Now they pay 15 pence per VRP and save about £18,000 a year. Luna: That's a real, measurable cost saving. And the drivers get paid faster — same day instead of waiting for a transfer. Lucas: Exactly. And that speed builds loyalty. The logistics company told me driver retention improved by 12 percent after they switched to VRPs. Luna: So VRPs are not just a payment method — they're a tool for improving business relationships. Lucas: I think that's the deeper takeaway. When you remove payment friction, you strengthen the commercial link. And in a world where B2B relationships are increasingly transactional, that's valuable. Luna: I want to look ahead — what's the next evolution for VRPs? Are we heading toward programmable payments, where the conditions for payment are embedded in smart contracts? Lucas: That's exactly where the cutting edge is. Some fintechs are experimenting with 'conditional VRPs' — where the payment triggers automatically when certain data is verified. For example, a construction contractor could set up a VRP that pays a supplier only when a delivery confirmation with GPS data is received. The payment is authorised in principle, but only released when conditions are met. Luna: That's essentially a smart contract on traditional banking rails, without the complexity of blockchain. Lucas: Right. And it's more palatable for regulated industries because it uses existing bank accounts and payment systems. I think that's the next wave — VRPs as the execution layer for programmable B2B commerce. Luna: Fascinating. So for anyone listening who runs a B2B business, the question is: could VRPs improve your cash flow or reduce your admin? Lucas: That's exactly the question. And the answer is likely yes if you deal with variable invoices, recurring payments, or manual reconciliation. The technology is ready — the question is how fast businesses adopt it.