Despite 2024 being the start of a new year, the threat of payment fraud continues to only only survive but thrive, harming consumers and companies alike who are not securely protected.
Virraj Jatania, CEO and Co-Founder of Pockit, addressed the one fraud type that continues to rise in the UK and what solutions banks and other financial institutions should implement to negate its risk.
Regulators have just announced a major intervention to tackle a payments fraud that affects thousands of people every year, but we still need to do much more to prevent scammers.
In an all too familiar story, victims of what are called authorised push payments frauds are tricked into thinking they are paying for a real product or service. They might be trying to buy a concert ticket or a new investment product. Instead, their money goes directly into a criminal’s account.
The problem is huge, costing an estimated half a billion pounds in the UK every year. It’s growing rapidly too, with more than four million offences committed each year.
It’s good to see the commitment of the Payment Systems Regulator (PSR) to tackling fraud. It has set out details of new regulations – the first industry-wide requirement on reimbursements for victims – that will mean where a fraud is committed, the financial institutions ‘sending’ and ‘receiving’ the payment need to split the cost of refunding victims evenly between them.
Customers need better protection but that doesn’t come for free. Rules requiring banks to reimburse all reportedly fraudulent transactions of more than £100 risks incentivising the scammers or encouraging false reports of fraud.
Some banks and fintechs might opt out of providing the same-day payments to which we’ve become accustomed to. Smaller start-ups facing large new liabilities might exit the market altogether, damaging the UK’s fintech ecosystem.
It’s also worth bearing in mind that not all claims made by consumers end up being fraud. To ensure this system operates fairly for all customers and financial institutions, there needs to be an arbitration process which allows a challenge to be brought against claims where there is another reason for a transaction failing. Such a system is already in place for disputed card transactions in the UK.
So, as the new system is put in place, we should take a much wider look at how we defeat payments fraud.
As a payment provider, we will need to continue evolving our systems and procedures for weeding out potential fraudsters when they apply for an account, as well as identifying fraudulent transactions before or when they occur. That work will never stop.
But we also need to make sure police and investigators have the resources they need to properly pursue and prosecute the scammers who prey on the vulnerable. There needs to be a fresh focus on big tech companies and the social media platforms that fraudsters use to target their victims.
We may need to consider a fund to support smaller players in meeting these costs, made up of contributions by the largest banks with the biggest balance sheets. Finally, we may need to think a little more about how much compensation is paid.
Pockit will work with the PSR and make the new rules work. Together we have to take on the fraudsters and create a resilient system to make sure fewer people fall victim to their schemes.
When the impact of the new payments regulations is reviewed, we think there will be a chance to better strike a balance between protecting consumers, maintaining consumer choice, supporting the UK fintech sector and avoiding moral hazard.