In an unusual about-turn, the UK’s Payment Systems Regulator (PSR) issued a statement confirming the implementation date for the APP fraud (Authorised Push Payments) protections to come into effect, and a new cap for mandated APP fraud reimbursement.
The limit being consulted is £85,000, a whopping reduction of £330,00 from the previously touted maximum reimbursement.
This value had been set in line with the Financial Ombudsman maximum reimbursement limit at the time.
APP fraud has been increasingly making headlines for scams in which consumers are duped into making payments to fraudulent accounts or persons they believe to be legitimate, or for a purchase of something they believe to be legitimate.
The reimbursement model was initially established as a voluntary measure, the Contingent Reimbursement Model (CRM), with the major banks having signed themselves up for it.
The PSR says the requirement is being introduced in October in a bid to make the industry invest further in end-to-end scam prevention, to avoid meeting the soon-to-be requisite cost of reimbursement.
Why has the cap been so drastically reduced?
There are a number of reasons why the maximum limit has been brought down.
For starters, a PSR found that in a review of 250,000 scam cases, only 18 defrauded the victims of £415,000 or more, and 411 of £85,000 or more.
Secondly, the £85,000 cap proposed is in line with the Financial Services Compensation Scheme (FSCS) limit, meaning people are familiar with the figure, and will have a good understanding of the figure to represent their consumer protection rights.
As the PSR states, the proposed new cap “will still see over 99% of claims (by volume) covered”.
Furthermore, the initial £415,000 limit had roused much protest and backlash from the industry from those who felt this would only incentivise fraudsters looking to exploit the system, and likewise inspire complacency in consumers.
Lesser speculation came about recently by way of the UK’s new governmental policy to protect the City and spur growth, that this might have influenced the decision.
But certainly, these measures, whereby even the FCA is endorsing adoption of “a risk-based approach to payments” will yield new state-of-the-art anti-fraud software.
Because anything that provides circumspection at speed is worth having.
The FCA separately has issued a Guidance Consultation on allowing PSPs to delay outbound payments “where they have reasonable grounds to suspect fraud or dishonesty”.
Running from 9 September to 4 October 2024, updated draft guidance will be published thereafter with a revised Approach Document for payment services due by the end of the year.
Firms on both sides of the transaction will be equally liable for the cost of reimbursement and the PSR says there may be a £100 ‘excess’.
According to the PSR review, the volume of APP scams increased 12% YOY from 2022 to 2023, from 224,603 to 252,626 (albeit the value decreased 12% from £389m to £340.6m).
Purchase scams are the most prolific route for scammers, and increased to the tune of 32% YOY.
Unintended consequences
A lot of eyes will be kept on developments in the space.
One interesting peripheral voice, not-for-profit membership service for fraud prevention, Cifas, has highlighted some further potential side effects.
These include instances of first party fraud, whereby consumers game the system, fraudulently claiming to be victims of APP fraud.
Despite a PSR exemption in place, this could be very difficult to detect.
Furthermore, ‘crime as a service’ packages might spring up, offering ‘fraud playbooks’ for a fee or facilitation for a cut of the profits.
And with mandatory reimbursement, Cifas rightly points out that political attention may shift away from the issue.
We will be exploring these outcomes further in a future issue as well as following the implementation of the mandate, cap and approach.
Payments Cards & Mobile Opinion
The new cap, although much reduced, is still a healthy figure and a neat consumer protection partner to the FSCS scheme. Our guess is that this will galvanise AI-based anti-fraud solutions and won’t cast spurious aspersions on whether software companies might have lobbied for the higher cap.
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