There are three powerful forces shaping the future of payments and how businesses pay and get paid today. Commercial variable recurring payments (cVRPs), AI, and vertical integration. These forces are transforming the way that businesses can interact with their customers. They are still in the early stages of their development. As these technologies evolve, they hold great potential to redefine payments, benefiting both businesses and consumers alike.

cVRPs – recurring commerce done smarter

When open banking is discussed, many people are familiar with options like “pay by bank” at checkout. While this is mostly used for one-time purchases, recurring payments like bills and subscriptions still rely heavily on direct debits. Businesses serving British consumers, who collectively spend almost £30 billion a year on subscription services, face challenges with slow settlements. There are also high fees (especially for failed transactions), and limited customer control.

cVRPs, the latest evolution of open banking, promise to ease many of the challenges. For example, cVRPs enable businesses to securely collect payments from customers’ bank accounts within agreed limits. These include the amount, frequency, or duration, without requiring customers to re-authenticate each time, reducing friction yet increasing optimisation.

In addition to providing the same benefits as ‘pay by bank’ at checkout, such as the convenience of not having to enter your card details and security of not sharing these details with the retailer, cVRPs can unlock new business models for businesses dependent on recurring revenue. The open banking infrastructure which powers cVRPs allows businesses to gather data insights from these transactions. This enables the introduction of offers like dynamic pricing for subscriptions, or variable insurance premiums based on usage. Not only does this help operational efficiency, but it ultimately enhances the customer experience, encouraging them to keep coming back.

Critically, cVRPs are more likely to successfully complete compared to traditional direct debits, as businesses leverage advanced capabilities like smarter retry logic and dynamic payment routing. These are typically implemented by providers offering VRP services. With open banking making real-time account balance checks possible, businesses can determine the best time to retry a failed payment, such as after payday. Dynamic routing enables merchants to route transactions based on pre-defined business rules, such as transaction value, geographic region, or acquirer performance. This flexibility ensures that payments are directed to the most suitable acquirer or provider. Therefore ncreasing the likelihood of successful transactions and optimising cost efficiency. Together, these capabilities help reduce failed payments, keep customers subscribed, and increase revenue over time.

However, its nascence means there are still potential threats ahead. Regulators need to learn lessons from the growth of ‘pay by bank’. There are 27 million monthly payments now taking place after a slow start, as well as already piloted sweeping VRPs to ensure a solid business model for open banking. With collaboration from banks, FinTechs, business, and government, the ecosystem can take full advantage of these innovative capabilities to reduce friction.

AI/ML’s transformative impact

The advances in AI and machine learning (AI/ML) are written about every day. So, it’s perhaps no surprise that they are having a profound impact on how businesses process payments, detect fraud, and improve customer service. AI’s ability to process large volumes of transaction data efficiently helps businesses identify patterns, trends, and anomalies that would otherwise be difficult to detect.

Not only does this capability benefit fraud prevention, but it can also help businesses gain meaningful insights from the data. Allowing them to expand their service offerings. For example, businesses can apply AI/ML to automate tasks enabled by open banking, such as income verification, affordability checks, and financial health scoring. This helps speed up onboarding and approval processes. Meanwhile, giving consumers access to more sophisticated services. These include spend forecasting, budgeting nudges, and alerts for unusual activity, thereby helping them manage their money more effectively.

Looking ahead, AI/ML will be central to unlocking the full potential of open banking. By improving operational efficiency and enabling richer customer experiences, AI will help businesses transition from reactive to proactive financial services. Currently, the best use cases for AI are assistive, not autonomous. AI is at its most powerful when it augments human decision-making, particularly in nuanced or regulated environments. We’re still early in the maturity curve. As the technology becomes more affordable and the technology within it more explainable, it’s hard to imagine the full potential impact of AI in the payments industry.

Tailored Solutions

The combination of open banking and AI has led to a more tailored and specialised approach to payments technology, particularly for businesses in specific industries. While these powerful tools offer great potential, it is crucial that they are applied in the right way, at the right time, and for the right business.

To move beyond generic payment solutions, the industry is seeing increasing vertical integration. Instead of simply processing transactions, payment providers must now deliver more comprehensive solutions that address the needs of specific sectors. In industries where payment needs are more complex, vertical integration ensures that payment solutions are tightly aligned with business operations. For example, businesses in the construction sector often require project-based billing and payment systems that reflect the way projects are managed. Elsewhere, hospitality providers need solutions that integrate payment systems with real-time inventory tracking and booking management.

It’s fair to say firms will always be looking for any place to optimise to gain an edge. The trend towards vertical integration, combined with cVRPs, and AI are redefining the future of payments. There is a move away from a technical area of the business, to become a core operational function. Businesses adapting to leverage these technologies are well placed to create stronger connections with their customers and drive long-term growth.