According to reports from UK Finance, Britons lost £1.17 billion to authorised and unauthorised APP fraud in 2023. Notably, 76% of the scams originated from online sources, highlighting the need for robust fraud prevention methods.
The UK’s Payment Systems Regulators (PSR) are stepping to the plate to protect citizens and businesses, having introduced the new rules that will require banks and payment service providers (PSPs) to reimburse victims of Authorised Push Payment (APP) fraud up to £415,000, starting on October 7, 2024, incentivising industry investment in fraud prevention and improving customer protection.
The new rule also states that sending PSPs may be held liable for reimbursing APP scam victims unless there are exceptions, such as the consumer not meeting the standard of caution. PSPs will be allowed to levy an excess of up to £100 per claim, but not in the case of vulnerable customers. However, this policy has not settled well with the payments sector.
Industry Policy Backlash and its Effects on Fintech and Innovation
The incoming rules set by the PSR have faced significant backlash from the payments sector. Banks and FIs argue that the policy places an unfair burden on them. Some point fingers at the tech giants whose platforms are often used to facilitate fraud and expect them to contribute to the APP reimbursement pool as well.
Bim Afolami, a British Conservative Party politician, hit out at the watchdog’s fraud prevention plan as it possesses ‘significant problems’ in the latest sign of tension between the Treasury and regulators.
He also shared concern over the potential impact this policy may have on smaller fintech firms. Some other FI’s have also established that the new PSR rules could potentially encourage fraudsters to pose as victims and claim compensation, leading to an increase in first-party fraud.
PSR Head Departs, Interim Leader Upholds Policy Pre-Election
Recently, the PSR appointed its interim lead, David Geale, the former director of retail banking at the Financial Conduct Authority (FCA), as the managing director. Despite the opposition from the payments sector, Geale has stated that the deadline of October 2024 will go on as planned.
However, the Labour Party’s landslide win in the 2024 UK elections could potentially disrupt the PSR’s APP reimbursement implementation and lead to a shift in the government’s approach to tackling this issue.
Labour’s Stance of Involving Tech Giants
Days before the UK election, the Labour Party drafted a proposal holding tech giants such as Google, Amazon, Facebook, and Microsoft accountable for compensating victims of online scams. In a recent publication by The Fintech Times, Labour claims that big tech companies have been “shrugging off responsibility” for combating online fraud and compensating victims despite there being evidence that their platforms are being used to commit the fraud in the first place.
Labour’s recent proposal includes provisions for banks to refund fraud victims initially but then allow them to recoup some costs from tech companies. To keep a fair view, an overseen body will be assigned the task of reviewing evidence from banks and payment companies to determine the financial contributions required from tech companies.
Furthermore, a study conducted by VISA found that one in three surveyed consumers has fallen victim to APP fraud. At the same time, data from UK Finance shows that in the first half of 2023, the volume of cases increased by 22 per cent with respect to the previous year.
New Govt May Pause Policy to Create Online Fraud Tax Levy
With Labour forming a majority government, their proposal to involve tech giants in APP reimbursement for fraud victims could lead to a pause in the implementation of the current PSR policy. This would allow the government to explore broader cross-sector collaboration between telecommunications and online platforms to address the issue.
FIs, however, can benefit from the extra time to strengthen their controls, improve management information, and enhance their fraud detection capabilities.
Additionally, this could also mean the possibility of including an offence for tech companies that fail to prevent scams on their platforms. This may also potentially lead to the creation of an online fraud tax levy or some sort of pooled account, where the banking industry does not solely bear the loss of fraud from APP reimbursements.
Policy Dates Likely to Move: Strengthen Governance, MI, Fraud Detection
While the date and details of the implementation of the APP reimbursement policy could potentially change under the newly elected government, this should not be seen as an opportunity for complacency. Instead, it is a crucial time for the industry to strengthen its controls, governance, and fraud detection capabilities.
Providers in the payment sector should use this period to invest in better, more advanced technologies, such as AI and data-driven, persona-based approaches, to identify and prevent fraudulent activities. An improvement in cross-sector data sharing and collaboration between telecom and tech companies will be crucial in effectively tackling the rise of online fraud.
Go Beyond CoP: Implement EFD, Telecom Scam Signals with TechnoXander
At TechnoXander, we believe the fight against online fraud requires a comprehensive and collaborative approach. While the policy landscape may be in flux, financial institutions need to enhance their fraud detection and prevention capabilities proactively.
Our Confirmation of Payee (CoP) solution combined with Enhanced Fraud Data Sharing (EFD) solution and scam signals from telecom go beyond the traditional methods of detection. We leverage advanced analytics and machine learning to identify complex fraud patterns and emerging threats.
With the integration of telecom data signals and other reliable external data sources, we can provide a more holistic view of fraud risk, enabling early detection and prevention.
To learn more about TechnoXander’s solutions and how they can help your organisation stay ahead of the curve in the fight against fraud, visit our website or contact us today.
