Intelligent flexible Payments: A new approach to reducing preventable debt

Open banking payments are gaining momentum. Financial Conduct Authority figures show the UK now has 16 million users, while payments have risen 53% year on year. The technology is shifting beyond early concepts and is increasingly being applied to making flexible payments accessible for consumers and businesses at scale.

This is great news as many traditional recurring payment arrangements still rely on fixed dates and fixed sums, which do not always match the way people receive income or manage day-to-day finances. Commercial Variable Recurring Payments (cVRPs) are therefore becoming an important building block for the next stage of account-to-account payments, allowing for variable amounts, customer-defined limits and clear consent. For those working in the gig economy or with multiple, non-uniform income streams, more flexibility is a gamechanger for personal financial management. 

That potential is now supported by a more workable market structure. Since early June, the UK Payments Initiative (UKPI) has brought commercial VRP into live use through a multi-lateral agreement, common rulebook and shared commercial model, reducing the need for providers to agree terms with each bank individually. Wave 1 has been designed around lower-risk, regulated or trusted sectors, including energy, utilities, telecoms, government and regulated financial services. For energy and utilities providers, cVRP is now a practical way to offer customers more choice while strengthening collections, consent management and debt prevention.

The timing is important because energy debt is continuing to climb. In the UK, Energy UK estimates household energy debt as £6bn ($8.18bn) whilst regulator Ofgem is expected to announce a 4% increase in its domestic price cap, taking it to a three-year high. With bills under pressure, suppliers need to focus on supporting consumers with managing and preventing debt and limiting escalation.

Why existing payment options do not go far enough

For bill payments, customers are generally offered three routes: direct debit, standard credit or prepayment. All have benefits, but none fully aligns with the financial circumstances many households face.

Direct debit is effective for many households, but its lack of flexibility can create problems. If a customer has £99 available when a £100 bill is due, the system collects nothing rather than taking a partial payment. This can lead to arrears, anxiety and disengagement. While 72% of households pay energy bills by direct debit, the model can be a poor fit for people with irregular cashflow, including many workers who are not paid a fixed monthly salary.

Standard credit appears flexible because customers pay after receiving a bill. In reality, large bills can land at a difficult point in someone's income cycle and may be delayed or overlooked. It is also more expensive: households using standard credit pay around £131 more each year than direct debit customers, and many are unaware of this difference. Energy UK estimates that standard credit is responsible for around half of debt.

Prepayment can make spending easier to track, but once credit runs out, access to energy stops too. Smart Prepayment improves the experience and ensures those who can pay will, but the risk of disconnection remains a concern for genuinely vulnerable customers or those whose challenge is simply the timing of funds.

What consumers need is a variable, more adaptable payment option that better reflects contemporary income patterns while helping suppliers cut preventable debt.

Why Commercial Variable Recurring Payments create an opportunity

cVRPs provide a more flexible model: consent-led payments that allow variable amounts, user-defined caps and greater customer control. They can enable intelligent flexible payments where the amount or timing needs to change, or where customers would benefit from splitting payments into smaller sums that better suit their circumstances.

For customers whose income varies month to month, cVRPs can offer the ease of direct debit with added adaptability. Open banking can also provide the basis for secure, permission-based insight, helping organisations time prompts more effectively and create payment journeys that respond to customer needs.

How to make cVRPs work effectively

cVRPs offer considerable promise, but successful implementation depends on four core areas:

• A clear customer consent process: Customers need to know what they are agreeing to, what limits apply, when prompts will arrive and how they can amend or cancel the arrangement.
• More intelligent timing and prompts: Payment requests should be made at points when they are most manageable for the customer, rather than being tied to a fixed collection date. Open banking can help indicate when a prompt is more likely to be effective.
• Robust controls, exception management and operational support: Providers need to account for missed prompts, disputes, failed or partial payments, and links into customer service and back-office platforms.
• Data-driven intervention and earlier vulnerability identification: Payment insights can help providers spot short-term friction, financial difficulty or emerging vulnerability sooner, so customers can be offered appropriate options or directed to support faster.

With these foundations in place, intelligent flexible payments can benefit both customers and providers. Customers receive options that better fit their circumstances and give them more control. Providers can reduce failed payments, strengthen cashflow and cut servicing and recovery costs, which ultimately feed into consumer bills. Moneyline has reported that customers using this capability for credit repayments saw a 10% reduction in arrears compared with direct debit.

The opportunity is already available

As cVRPs move out of theory and into practical implementation, they have the potential to reshape how recurring payments are handled. The key question is whether organisations, especially in sectors such as energy where recurring billing and debt risk are both high, can introduce them in a way that is trusted, resilient and built around customer needs. If they can, the sector has a clear opportunity to move from recovering debt after the fact to preventing it earlier, using payments that are both intelligent and flexible.