Commercial VRP and Direct Debit: why they're complementary, not competitive
With Commercial Variable Recurring Payments (cVRP) set to enter the UK market in 2026, the big question from finance teams is "will cVRP replace Direct Debit?". The answer: not necessarily. Both rails solve different parts of the same collections problem, and a business running both together is better placed than one running either alone.
Why the "cVRP will replace Direct Debit" narrative misses the point
Direct Debit has processed recurring UK payments reliably for over 50 years. Pay.UK processed over 6.8bn Bacs payments in 2024, including nearly 5bn Direct Debits. The rail is woven into billing systems, customer expectations, and operational workflows. Replacing it wholesale would require re-consenting millions of payers, rebuilding integrations, and absorbing transition risk, all before capturing any of the efficiency gains cVRP offers.
Commercial VRP does not require that trade-off. It is designed to operate alongside Direct Debit, not to displace it. The practical reality for the first expected applicable use cases (Wave 1) reinforces this: cVRP bank coverage is already strong, with consumer coverage heading for 80-85%, and growing as more banks come onto the scheme. Even so, both rails earn their place: Direct Debit remains the fallback for customers whose banks are not yet cVRP-enabled, and cVRP is the natural rail for net-new customers, sparing them a Direct Debit sign-up. A multi-rail strategy is not a compromise; it is the sensible setup.
Where each rail performs best
Direct Debit is well suited to fixed or predictable recurring amounts, mature customer relationships where trust is already established, and payment flows where the three-day settlement cycle is operationally manageable. It remains cost-effective at scale and requires no change to existing customer consents.
Commercial VRP is better suited to variable or consumption-based amounts where the exact figure is not known in advance, high-value transactions where instant settlement materially improves cash flow, and new customer relationships where the bank-authenticated consent flow reduces friction at sign-up. It also reduces failures at the point of collection, because funds availability can be checked before the payment executes.
For most large billers, the collection book contains both types of payment. A flat per-transaction pricing model that applies regardless of which rail the payment uses removes the commercial incentive to delay cVRP adoption and simplifies financial planning for finance teams.
The hybrid collection book in practice
A hybrid approach works as follows. When a collection is initiated, the platform determines the optimal execution rail based on the customer's consent status and bank coverage. Where a cVRP consent exists and the customer's bank is cVRP-enabled, the payment executes in real time via Faster Payments. Where cVRP is not yet available for that customer, the payment could automatically route to Direct Debit.
The customer experience remains consistent. The finance team sees a unified view of collection status across both rails. Over time, as more banks enable cVRP, the proportion of payments executing via the faster rail increases organically without any re-integration or re-consenting exercise.
This architecture also means that a business does not need to wait for full market coverage before building cVRP into its operations. Starting the cVRP consent journey early means a growing proportion of the collection book is already on the faster rail when coverage expands.
The capital efficiency argument
The operational benefits of cVRP are visible in the collections cycle. The financial benefits show up on the balance sheet. Instant settlement via Faster Payments compresses the gap between a payment obligation arising and cash landing in the business account. For large billers processing thousands of transactions per month, that gap has a measurable effect on working capital.
Reduced failure rates have a similar effect. When funds are checked before a payment executes, the proportion of first-attempt failures falls. Fewer failures mean less recovery overhead, fewer days to resolution, and a smaller population of accounts at risk of moving into arrears. For regulated lenders in particular, a faster recovery cycle has direct implications for credit provisioning and IFRS 9 staging.
Why a joined-up view matters
Running Direct Debit and cVRP as fully separate operations means separate providers, separate contracts, and separate reconciliation flows for each rail. For collections teams already managing complex workflows, that fragmentation adds cost and reduces visibility.
A more joined-up approach changes the picture. When both rails sit within a single view of collection performance, finance teams can see the full picture across Direct Debit, cVRP, and Open Banking without reconciling data from multiple systems. Routing logic, reporting, and customer experience all become easier to manage as cVRP adoption grows.
Modulr supports a full range of collection methods, including Direct Debit and Open Banking payments today, with Commercial VRP to follow. Explore Modulr's pay-ins and collections solutions.
This article is for informational purposes only and should not be construed as financial, legal, or regulatory advice.
TL;DR
Commercial VRP is not a replacement for Direct Debit. It is a complement to it. The two rails solve different parts of the collections problem, and while the scheme consolidates, most businesses will run both simultaneously, using cVRP particularly for new customers and where bank coverage allows, with Direct Debit covering the rest. A joined-up view across both rails gives finance teams a single picture of collection performance and lets businesses grow their cVRP adoption over time as bank coverage expands.
FAQs
Should businesses switch from Direct Debit to Commercial VRP?
Not immediately, and not entirely. Commercial VRP is designed to complement Direct Debit rather than replace it. While the scheme consolidates, a hybrid approach — cVRP for new customers and where bank coverage allows, Direct Debit for everyone else — is the practical and commercially sound architecture for most large billers.
What happens when a customer's bank does not yet support cVRP?
In a multi-rail collections setup, the payment could route to Direct Debit when cVRP is not available for a given customer. This means businesses can adopt cVRP without waiting for full market coverage. As more banks enable cVRP, the proportion of payments executing via the faster rail increases without any re-integration.
How does Commercial VRP reduce payment failures?
Unlike Direct Debit, Commercial VRP checks funds availability before the payment executes. If the customer's account does not hold sufficient funds at the point of collection, the payment does not proceed. This reduces first-attempt failures, compresses recovery timelines, and lowers the operational cost of managing collection shortfalls.
Is there a financial benefit to faster settlement via cVRP?
Yes. Instant settlement via Faster Payments compresses the gap between a payment obligation arising and cash landing in the business account. For large billers, this has a measurable effect on working capital and cash flow forecasting. Reduced failure rates also lower the population of accounts at risk of arrears, with direct implications for credit provisioning.
What is the Collections Hub?
The Collections Hub is Modulr's approach to multi-rail payment collections. It brings Direct Debit, Commercial VRP, and Open Banking payments together for finance teams, with flat per-transaction pricing regardless of which rail the payment executes on, and a unified view of collection performance across all rails.
