Direct debits will be phased out as banks prepare for instantaneous transactions.


A new method of making payments and transferring money between your accounts is on the way, but when will you be able to use them and how will they work?

The Competition and Markets Authority (CMA) has warned the UK’s nine largest banks and building societies that they must be ready to deploy smart direct debits, commonly known as variable recurring payments (VRPs), by July.


Customers can give their agreement in advance to have money transferred instantaneously between their own accounts and to third parties through the new payments system, which is intended to make life easier for everyone involved.

Consumers can schedule payments in advance, specify when they will take place, and establish dollar limitations on the quantities that can be sent. These payments will appear in their banking app.

In addition to existing payment mechanisms, such as direct debits, they will be used in conjunction with them.

However, the CMA has already extended the deadline for banks to be ready to begin accepting new payments until the end of January, allowing them to do so sooner. It was proposed six months after the majority of banks stated that they were not prepared to transition to the new system.

At the time, Charlotte Crosswell, head of the Open Banking Implementation Entity (OBIE), stated that it was not feasible to expect the banks to fulfill the January deadline for implementing Open Banking.

Due to Open Banking, a technology that allows financial institutions to share consumer data with their approval, new payments have been implemented.

A new universe of applications and platforms has emerged where we can access all of our financial accounts from a single location and where information about our money can be exchanged between financial institutions.

Following the implementation of the Payment Services European Union Directive (PSD2), open banking became a legislative obligation in the United Kingdom in January 2018. Currently, more than 5 million individuals and organizations in the country make use of the service.

When VRPs are in place, they will allow for what is known as “sweeping” to take place. The ability to move money instantaneously allows someone to pay for something, such as a subscription, or transfer money into another account, such as a savings account or an investment portfolio, without having to wait for the money to clear.


At the moment, the most common method of accomplishing this is by direct debit. However, it is customary for the consumer to have to agree to each payment being made in advance.

Despite the fact that direct debits have been in use since 1964 and are probably the most prevalent method of setting up payments and allowing companies to withdraw money from our accounts, one of the main critiques leveled against them is the amount of time it takes.

In contrast to paying with a credit card, a direct debit typically takes three days to process.

In most cases, an individual or business seeking direct debit must provide advance notification before the payment can be taken as well as the direct debit. The exception to this is if the client has already agreed to a one-time payment being taken, or if there is a payment plan in place that requires payments to be made at particular intervals on a specific day.

If you don’t have enough money in your account or if you need to make payment more quickly, the delay in the payment being finalized can cause problems for you.

Customers should be able to provide consent in advance of sweeping, which will help to expedite the entire procedure and reduce wait times.

Savings and investment accounts will be funded at a faster rate, allowing interest to be earned immediately, credit card debts will be cleared at a faster rate, eliminating the possibility of late payment or interest charges, and the process of using surplus money to pay off outstanding loans will be accelerated, among other advantages.

GoCardless’s chief product officer and chief growth officer, Duncan Barrigan, describes how the company works:

Inflation is putting a strain on our finances, and interest rate hikes are on the horizon. The introduction of new technology couldn’t have come at a better moment.”

In order to move money between your accounts at multiple financial institutions will allow you to set up automatic recurring transfers depending on the parameters of your choosing, which will move money between the accounts you hold at different financial institutions.

This includes money sent from your bank account to savings and investing accounts on platforms like Plum, which allows you to put spare money into work more quickly – without lifting a finger.”

The banks now have until July to finish the testing phase of VRPs, although it is still unclear whether consumers will be allowed to begin taking advantage of the new technology on a widespread basis.

Due to the fact that payments are likely to be processed through banking apps, this will also exclude anyone who does not manage their money in this manner, or who does not consent to the Open Banking initiative.

“While direct debit is presently the most practicable method for automated deposits, we’re looking forward to being able to add variable recurring payments,” said Victor Trokoudes, CEO and co-founder of investment app Plum.

The ability to save and invest small sums promptly and consistently is one method to make it considerably easier for clients to save and invest small amounts without having to rely on the limits of direct debit.”

In order to ensure that innovation and improvements continue to be made for the benefit of consumers, it is critical that we as an industry continue to exert pressure on the Open Banking system.


Master of Science student at the California Institute of Technology, Devanny. Since he began working as a freelance writer more than 4 years ago, he has contributed to various publications, including blogs, magazines, poetry websites, newspapers, and internet debates. Pankaj has been contributing original content to The Current in a freelance capacity throughout the past year. Words from Pankaj: "Spread love everywhere you go. Let no one ever come to you without leaving happier."