Britain’s payments firms are breathing a collective sigh of relief at the news that the Payment Systems Regulator (PSR) might lower the cap on its incoming fraud reimbursement rules.
The regulator is going to hold a consultation on the new regulations before it takes effect on 7 October. The rules will require banks and payments providers to reimburse customers who fall victims to authorised push payment fraud (APP fraud), split 50/50 between the paying and receiving companies.
Payments firms were alarmed, however, at the extent of the regulations, particularly the proposed £415,000 cap on reimbursement. Many felt that this was too high and although the PSR’s latest update could see it reduced to £85,000, some still feel an even lower threshold would be more appropriate.
Is £85,000 still too much?
Responding to the news on LinkedIn, Riccardo Tordara-Ricci, Head of Government Relations at The Payments Association (TPA), an industry trade body, stated that £30,000 would be more appropriate. He argues that a £30,000 cap would still cover 95% of fraud cases, and that TPA will ‘continue to push’ for this.
The PSR’s plans for fraud reimbursement were outlined towards the start of this year, and ever since there have been two overriding concerns voiced by payments and fintech firms. Firstly is the financial burden a £415,000 reimbursement cap would place on the industry.
This is particularly true for smaller startups, which like the rest of the British economy, makes up the vast majority of the country’s fintech firms. It is less true for the UK’s larger payments companies and multinational banks, but this has not dulled the sector’s concerns.
Understandably, many firms have responded positively to the developments. There is a feeling that the regulator is taking the industry’s considerations on board via the new consultation, whilst keeping the implementation date and overall principal of reimbursement on track, whilst protecting customers.
“This move strikes a better balance between protecting consumers and ensuring the continued innovation and competitiveness of the financial sector,” says Dima Kats, CEO and Founder of payments provider Clear Junction.
“It’s a positive step forward in maintaining a fair and effective regulatory framework. Such open dialogue between the industry and regulators is a hallmark of the UK financial services industry, setting it apart from other regions by fostering a more responsive and adaptable business environment.”
The economic element
Much of the discontent regarding the fraud reimbursement rules came from the payments industry, unsurprisingly. However, the government has also been having its say, with a noticeable change in tune after the July election in which Keir Starmer’s Labour kicked out Rishi Sunak’s Conservatives.
Under the new administration, HM Treasury seems to have been more in favour of reassessing the PSR reimbursement policy. This may be in part due to the party’s desire – shown throughout the general election – to present itself as a party for business.
The UK economy has been enjoying recovery this year, growing by 0.6% on two separate occasions as inflation has declined, though costs of living continue to put a strain on consumers’ pockets. Labour has often stated that financial services and technology, including fintech, are vital aspects of Britain’s economy.
Finance firms were concerned that hefty reimbursement fees could hold back the sector’s continuing growth. The PSR’s change has been praised by some as a positive move which will safeguard British financial services.
“By addressing this issue, the PSR is not only enhancing the security framework but also supporting the broader financial ecosystem,” says Alex Reddish, Managing Director of Tribe Payments, a payments technology firm.
“While it’s crucial to tackle the underlying problem of fraud, which cost the industry nearly £5bn in 2023, balancing these measures with the need to nurture and sustain the fintech sector is equally important.
“This move signals a commitment to both innovation and security, ensuring that the UK remains a global leader in financial technology while actively working to mitigate the impacts of fraud.”
Regardless, the fact remains that fraud is an ever-constant threat for British consumers. Fraudsters have also been making greater use of technology, like Artificial Intelligence (AI), to enhance their tactics, making life even more difficult for the victims they target.
The extent of fraud, particularly APP fraud, was demonstrated in Financial Ombudsman Service data yesterday, showing in excess of 8,000 fraud complaints from April-June. Similarly, data from Open Banking platform Trustly released today shows £58.9m in credit fraud reported to British police between 2021 and 2023.
“Our research shows that a shocking number of people are falling victim to fraud,” says Anisha Sudra, Head of Fraud at Trustly.
“It’s concerning that thousands of people lose millions of pounds to fraud in the UK each year. The sophistication of payment fraud is ever-growing and shoppers must remain vigilant to the potential scams.”
What about Big Tech?
Whilst payments firms, for the most part, are reacting positively to the PSR’s plans, there is one concern that remains. This is the opinion that Big Tech firms, particularly social media giants, also have a role to play in preventing and reimbursing victims.
“The only way to fully protect #consumers is to prevent fraud from happening in the first place,” TPA’s Toredera-Ricchi’s LinkedIn post continued. “We know the scam lives #online, but where is #bigtech?”
Social media is often used to commit fraud, such as targeting consumers with false investment opportunities and other scams. Barclays, Lloyds and Revolut are a few examples of prominent financial institutions to issue warnings about this, citing football ticket scams and travel scams.
Labour and the Treasury seem to have taken this concern onboard too. A policy document seen by the Financial Times just prior to the election indicates that Labour believes Big Tech firms should play a bigger role in the fight against fraud
On the topic of technology, however, it is also important to examine how banks and payments firms can leverage developing technologies and innovations to enhance their own platforms and more importantly, to protect their customers.
”One very positive outcome of the upcoming APP fraud regulation is that it will force payment firms to get their fraud identification and monitoring in order,” says Jessica Cath, Head of Financial Crime at financial services compliance consultancy Thistle Initiatives.
“They will only have a few seconds to block a transaction they suspect of being APP fraud, so this is what they need to focus on. It would be great to see social media companies brought into the reimbursement model and held more responsible for fraudulent activity, as they are often the source. This would encourage cross-industry collaboration, which would make APP fraud prevention far more effective.”
AI may be used by fraudsters to commit their crimes, such as by creating deep fakes, but it can also be leveraged by payments firms to analyse data and information to better detect potentially fraudulent activity.
Open Banking has also been touted as a solution due to the extensive data sharing involved, though convincing consumers – many of whom are understandably wary of sharing too much data with a third party – to do so may be another challenge. Open Banking providers remain confident in its ability to pull this off, however.
Trustly’s Sudra continues: “We believe technology offers a transformative approach to preventing fraud by creating a more secure and transparent payment environment. Open Banking combines stringent security measures with user-friendly payment processes.
“The new PSR rules will provide further protection for consumers against fraud. Hopefully, this will give more people confidence to use Open Banking as the adoption of this technology continues to grow rapidly.
“Once the new regulations come into force, Open Banking has the potential to become the backbone of secure online shopping, empowering businesses to protect their customers while providing consumers with a seamless and secure payment system fortified against modern fraud threats.”