Variable Recurring Payment

Variable Recurring Payments (VRPs) using a Request for Payment (RfP) integrated with FedNow and Real-Time Payments (RtP) within the framework of Open Banking offer a highly efficient, secure, and dynamic system for managing recurring payments. Here are the key attributes of this solution:

1. Instantaneous Payment Settlement:

• FedNow and Real-Time Payments (RtP) provide real-time settlement, meaning that payments are completed instantly or within seconds, 24/7.
• This real-time capability ensures that merchants receive funds immediately and payers see the immediate deduction from their accounts, improving cash flow management for both parties.

2. Consent-Based Recurring Payments:

• Like traditional VRP under Open Banking, customers provide explicit consent for recurring payments. This consent includes parameters like the maximum payment amount, frequency, and validity period.
• The customer controls how and when recurring payments are made, and they can modify or revoke this consent at any time.

3. Request for Payment (RfP) Integration:

• RfP acts as a trigger for VRP payments. Merchants or service providers can send a Request for Payment to the payer, who has already pre-authorized recurring payments, meaning payments can be automatically initiated as long as they stay within agreed terms.
• RfP enhances the automation of payments and reduces friction, as the payer does not need to take manual action for each recurring payment after the initial consent.

4. FedNow/RtP Infrastructure:

• Both FedNow and Real-Time Payments (RtP) are infrastructure layers that support immediate and secure settlement of transactions.
• These systems ensure that payments are final, irrevocable, and immediate, reducing the settlement risk and improving the reliability of recurring payments compared to slower systems like Automated Clearing House (ACH).

5. Flexibility of Payments:

• VRP via FedNow/RtP provides a high degree of flexibility. Payments can be variable in amount and frequency based on the customer's agreement with the merchant.
• This is ideal for use cases where payments are not fixed (e.g., utility bills, ride-sharing services, or pay-as-you-go subscriptions).

6. Cost-Effectiveness:

• Both FedNow and RtP offer lower transaction fees compared to traditional card networks, making VRP + RfP an attractive option for merchants, especially in scenarios that involve frequent payments, such as subscriptions or bills.
• By eliminating intermediaries like card networks and ACH systems, costs are reduced for both merchants and customers.

7. Strong Customer Authentication (SCA) and Security:

• Payments through Open Banking, FedNow, and RtP are subject to Strong Customer Authentication (SCA) to ensure security.
• Although VRPs automate the payment process, the initial consent involves robust security protocols, and transactions are protected by multi-factor authentication.
• The use of tokenization and encrypted payment requests also ensures that sensitive data is not exposed during the transaction.

8. Instant Notification and Transparency:

• Payers and payees are notified immediately upon payment completion via instant alerts. This ensures transparency, allowing both parties to keep track of their financial activities in real-time.
• Customers can access their payment history and modify or revoke permissions, giving them complete control over the recurring payments.

9. Dynamic and Usage-Based Payments:

• VRPs using FedNow and RtP support dynamic recurring payments, where the amount can change based on the customer’s usage (e.g., utilities, tolls, or ride services).
• This is particularly beneficial for businesses that do not have fixed payment cycles, providing flexibility for both the merchant and the customer.

10. 24/7 Availability:

• Both FedNow and Real-Time Payments systems are operational 24/7/365, meaning that payments can be processed at any time, unlike systems such as ACH that are limited to business hours.
• This always-on availability is crucial for recurring payments, ensuring there are no delays due to banking hours.

11. Improved Cash Flow for Merchants:

• With real-time settlement provided by FedNow/RtP, businesses experience immediate liquidity without waiting for batch settlements or delayed clearing processes.
• This is a significant improvement for businesses relying on quick access to funds for operational efficiency.

12. Regulatory Compliance and Consumer Protection:

• VRP and RfP systems using Open Banking with FedNow/RtP comply with regulations such as PSD2 (for European markets) or the Federal Reserve’s guidelines for real-time payments.
• These systems offer robust consumer protection, ensuring that the customer's consent is required before any payment, and they have the right to revoke it at any time.

13. Support for Multiple Use Cases:

• Subscription services: Automated recurring payments for media, software, and other subscription-based models.
• Utility payments: VRPs can be tailored for variable recurring charges, such as energy or water usage bills.
• Loan repayments: Flexible loan payments, especially for businesses, based on real-time repayment schedules.
• Pay-as-you-go services: Ideal for transportation, ridesharing, or tolls where payment amounts fluctuate depending on usage.

14. Reduced Payment Failures:

• With real-time confirmation and availability of funds, the risk of payment failures or delays is greatly reduced compared to traditional methods.
• No need for manual intervention: VRPs ensure that payments happen automatically without manual steps from either the customer or merchant, provided the conditions are met.

15. Simplified Merchant Integration:

• Merchants can easily integrate with FedNow/RtP systems and Open Banking APIs to offer VRP services, reducing the complexity of managing recurring payments.
• The integration with APIs allows businesses to have real-time visibility into their transactions, making it easier to reconcile payments and reduce administrative overhead.

By combining VRP with RfP through FedNow and RtP, businesses and customers experience a frictionless, real-time, secure, and flexible recurring payment system, perfectly suited to meet the demands of modern financial ecosystems. The instant nature of these systems, combined with consent-based automation and high security, offers a next-generation solution for recurring payments.