In September 2022, the Payment Systems Regulator (PSR) took an exciting and transformative step, consulting on measures to address the threat of Authorised Push Payment (APP) fraud within the UK’s faster payments system.
They have the authority to implement robust proposals which revolutionise the approach taken against APP fraud; this article explores its many dimensions by exploring its complexity for banks involved in sending and receiving fraudulent payments.
The Regulatory Landscape
The urgent nature of clamping down on Authorised Push Payment (APP) fraud can be seen from its staggering statistics: UK Finance estimated over £480 million was stolen from over 200,000 consumers during 2022 alone through schemes ranging from purchases and investment scams, romance scams, impersonation schemes and romance frauds.
In response, PSR proposals set to take effect in October 2024 seek to reform payment firms’ incentive structures with proactive prevention in mind against such acts of theft.
Liability and Reimbursement Shift
The PSR’s strategy relies heavily on shifting liability between sending and receiving banks, with both making equal contributions in terms of reimbursements to victims of APP fraud in most instances.
Furthermore, 50% of refund costs will be assumed by institutions receiving funds – reflecting an unconventional change to banks’ approach to fraud prevention that marks a departure from traditional outbound focus and necessitates a paradigmatic shift.
The PSR’s Measures
The measures proposed by PSR involve three-pronged approaches:
- Reimbursement in Nearly All Cases of App Fraud: The Payment Systems Regulator mandates reimbursement to victims in almost all instances of App fraud; banks that send and receive funds share liability in this regard to ensure consistency and fairness throughout the reimbursement process.
- Enhancing Protection for App Scam Victims: With measures designed to bolster victim defences against app scams and create a more secure financial ecosystem, the PSR measures aim at strengthening protection for victims.
- Incentivisation for Fraud Prevention: Recognising the need for proactive fraud prevention, the PSR implements measures designed to incentivise banks and building societies to proactively defend against APP scams – marking an important shift towards preemptive action.
Challenges Faced by Banks
App fraud poses banks a unique challenge, due to the historical focus on outbound transactions. Over the past decade, banks developed systems to combat criminal activity associated with transactions leaving accounts, emphasizing online banking security and counteracting account takeover attempts. But with APP fraud coming from accounts receiving funds instead of accounts leaving, perspective must shift drastically; often true account holders initiate the transaction, thus complicating identification of fraudulent activity.
Operational Challenges and Cost Considerations
Banks face significant operational challenges when investigating high-volume, small-value APP fraud instances with an average loss of approximately £2,300 per case.
It is important to find an acceptable balance between thorough investigations and operational efficiency to ensure continuation. This is because real-time decision-making adds complexity, because of which false positives may degrade customer experience.
As the Payment Systems Regulator’s transformative proposals take centre stage in October 2024, shared responsibility for reimbursement underscores a collaborative approach between sending and receiving institutions.
This article highlights the importance of conforming to challenges associated with implementation. It also sheds light on the urgent need for advanced fraud prevention methods and a personalised approach to transactions within the payments system.
By adhering to such imperatives, banks can build a resilient financial ecosystem.
