How VRP is sweeping money management into a new era
The roll-out of sweeping, the automatic transfer of money between two accounts, is well underway and signals the long-awaited arrival of VRPs in the UK. But what are sweeping VRPs and who do they benefit? Let’s find out.
Sweeping VRPs – variable recurring payments that help facilitate ‘me-to-me’ payments – are rolling out in the UK shortly.
Alongside commercial VRPs, they have a smaller, but still very interesting role, especially when it comes to managing subscriptions.
Sweeping VRPs can help you gain a first-mover advantage within a new space.
In previous blog posts about variable recurring payments, we’ve looked at how VRPs work in general and the current status – here we’re going in-depth on sweeping: its use cases, user experience, and benefits.
What is sweeping?
Sweeping is a type of Variable Recurring Payment (VRP) that lets consumers or businesses transfer, or sweep, money from one of their accounts to another – a ‘me-to-me’ payment. A key aspect is that it can be automated, allowing you to create smart rules to avoid overdraft fees or maximise savings. Another is that it comes with an SCA exemption, meaning you only need to authenticate once to make multiple transfers. Unlike traditional bank transfers or direct debit, the user experience is designed to be digital-first from the ground up.
So, who can use sweeping? And when? Currently, nearly all of the CMA9 banks – the nine largest in the UK – either already offer it or are in the process of doing so. HSBC announced its sweeping offering in August, for example, and at Tink, we’re working hard on an upcoming sweeping product (next to our commercial VRP beta program with NatWest). You can initiate sweeps from either personal or business accounts as long as the funds are sent from a CMA9 bank, which covers the vast majority of UK bank accounts.
Sweeping use cases are a bit more limited than those of its ‘premium’ counterpart, commercial VRPs. It can’t be used for making an e-commerce purchase or topping up a third-party wallet, for example. Nonetheless, it’s here, it’s ready for use, and is set to replace lots of manual transaction types and enable new, innovative financial services.
Sweeping at a glance
All major UK banks must offer it
Free to use
Free to access
Can be used by both consumers and businesses
Works with current, e-money, credit, and savings accounts
Already launched by some banks
What sweeping can be used for
Sweeping’s core use case is that of topping up an account, either on an ad-hoc or ongoing basis, helping customers run their finances more efficiently and make their money work harder through automation. This includes things like sweeping funds from a current account to a savings account or a current account to a loan account.
Smarter savings
Sweeping is already a well-established way of maximising earnings among professional investors, who typically use ‘sweep accounts’ to automatically transfer funds into a safe but higher interest-earning account at the close of each business day. The idea is to generate maximum interest for the customer with minimal personal intervention.
Sweeping VRPs promise much the same for consumers. Of course, personal finance apps like Tink customer Snoop already offer great ways for consumers to boost their savings. But the actual money transfers are typically made using direct debits – which are slow, offer little control and visibility, and don’t easily lend themselves to rule-based automation. Sweeping lets consumers take instant action based on their cash position since the transfers happen in real-time, or devise their own tailored savings and investment plans with the amounts varying in line with their financial situation.
Interestingly, the same use case applies to SMEs too. The UK’s OBIE states that there’s over £100 billion pounds lying in low-interest business current accounts. Sweeping enables businesses to automatically move excess funds into a business savings account and back, depending on the balance of the current account – putting their money to work with zero effort.
Relevant industries:
Personal finance tools
Bank account aggregators
SME accounting software
Stronger overdraft protections
The FCA estimates that 14 million Brits unexpectedly go into overdraft each year. With interest rates on an overdraft ranging from 19% to 40% or more, this is a major drain on consumer finances – especially in today’s economic climate. Prior to a rules change in 2020, the FCA found that the fees consumers paid for unexpected overdrafts were ten times higher than the ones for payday loans.
It’s little surprise then that a key motivation behind the CMA’s decision to mandate sweeping was to help consumers and businesses avoid fees and higher interest rates on overdrafts. Sweeping VRPs enable you to move funds between accounts when a balance runs low, on an automated or ad-hoc basis, with the funds settled instantly. In addition to boosting financial safeguards, this also creates the potential for new kinds of financial services around unbundled or plug-in overdrafts that don’t require you to switch banks for better rates.
Relevant industries:
Consumer credit providers
SME financing platforms
Mortgage providers
The all-important user experience
The key benefit of sweeping and VRPs generally is that you can make a series of payments, at variable amounts and intervals, with only one SCA step during setup – much like a direct debit or standing order, except with greater transparency over the amount, frequency, and end date.
The actual user journey to set up a sweeping VRP is much more streamlined, too. After selecting their bank, the user agrees to the terms of the VRP mandate and is redirected to their banking app to authenticate using a fingerprint or Face ID. There’s no need to manually enter data like bank details, making it far less prone to human error, and the user is automatically redirected back to the app they were using after setting it up.
User opts to set up a recurring top up
Beyond the payments flow itself, for years, one of the top consumer pain points with subscription-based services and recurring payment plans has been a lack of control and visibility. With the recent rise in cancelled subscriptions – otherwise known as ‘the great unsubscribe’ – consumers are warier than ever. This isn’t helped by how the two main types of recurring payments work. Direct debits and card-on-file payments can require you to deal directly with the merchant to change or cancel and are generally tricky to keep track of. After setting up a direct debit, for example, you can only see the amount debited on your latest bank statement.
With VRPs, users can see all the details in their banking app, making it easier to track incomings and outgoings. This will help consumers avoid the dreaded ‘set and forget’ subscription trap and also get a better overview of their economic health more generally. Financial services that offer sweeping VRPs ahead of the traditional, opaque alternatives can expect to build more trust and loyalty with their customers as a result.
Get ahead of the game
There’s understandably more excitement around commercial VRPs than sweeping at the moment due to the broader scope of potential use cases. It’s true that for VRPs to truly gain mass adoption, the industry will need to move beyond the current parameters and unlock non-sweeping use cases.
To date, though, only VRPs for sweeping have been mandated by the CMA. More than that, it’s live as of today, and the possible use cases already stretch across most financial services – all credit card repayments, almost all loan repayments, all current accounts and most savings accounts. Sweeping is a major opportunity for businesses to gain a first-mover advantage, and we expect they’ll quickly prove their worth.
If you’re interested in using Tink’s VRP product, be it sweeping or commercial, and getting early access to our APIs, then get in touch.
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