The UK payments industry is outlining its thoughts on incoming rules on fraud reimbursement, which the Payment Systems Regulator (PSR) is considering changes to.
Due to come into effect on 7 October, the rules require payments firms to fully reimburse victims of authorised push payment fraud (APP fraud). The PSR is not budging on the implementation date – but the extent of reimbursement is still up for debate.
The PSR initially planned to make firms reimburse victims up to £485,000, split 50/50 between paying and receiving firms. It has now revised this approach, following an extensive industry backlash with concerns cited around financial burdens, and is consulting with stakeholders on a new, significantly lower threshold of £85,000.
Many payments stakeholders are represented by the UK trade body, The Payments Association (TPA), though the organisation itself has stressed that it does not represent the entire industry.
In its published response to the consultation, TPA argues that the £85,000 limit is still too high and could have what it believes are unintended consequences. First party fraud, moral hazard and an overall increase in fraudulent activities are some of the concerns raised.
TPA has reiterated a long-held worry that more payments service providers (PSPs) and investors may leave the UK due to the burden. This concern, if it came true, would reverse substantial growth and investment enjoyed by the fintech and payments sectors over recent years.
Instead, TPA proposes a limit of £30,000. This is based on provisions of the Consumers Credit Act 1974, the average fraud losses in the UK of £12,000 for businesses and under £2,000 for consumers, and the median UK household income of £32,000.
“This is a good example of a transaction-based protection and has been in place for over 50 years without any major challenges to the functioning of the industry,” TPA’s consultation response details.
“Indeed, the card schemes have built up a well thought out dispute resolution mechanism called “chargebacks” and we would advocate a similar solution should be created for Faster Payments.”
Since the PSR announced the new APP fraud reimbursement rules in December 2023 some payments stakeholders have been voicing concerns about the financial impact the requirement could have on smaller firms.
TPA maintains this viewpoint, stating that the proposed reduction to £85,000 still poses a big financial risk for smaller payments companies. Like most UK industries, SMEs and startups make up the vast majority of firms active in the British payments sector.
The Association has also addressed the PSR’s ambition for the reimbursement limit to be applied to CHAPS, the Bank of England’s real-time gross settlement payment system.
As it stands, the 7 October implementation will only affect the Faster Payments network operated by the UK banking industry’s Faster Payments Network (FPN). TPA argues that £85,000 is too high a limit for either system.
Lastly, the Association has reiterated a longstanding viewpoint, this being its argument that social media companies should also shoulder responsibility for reimbursement fraud victims. This is due to social media platforms often being used to perpetuate fraud, such as by advertising false investment opportunities or as a means to contact victims.
“The lack of provision to involve social media companies in the reimbursement scheme does
not reflect all sectors involved in a fraudulent transaction and leaves the payments industry to solely bear the reimbursement costs,” the response reads.
“We contest the assumption that the industry has not done enough to protect consumers, and do not agree that being responsible for reimbursement will result in payment firms being able to prevent all fraud.”
The payments sectors’ concerns may have been heard by politicians in this area, however. Prior to the July election, the FT saw a Labour Party policy document stating that Big Tech firms should also bear responsibility for fraud reimbursement. This could well include the likes of Meta, operator of Facebook and Instagram, and X (formerly Twitter).
Whilst the Payments Association welcomed the proposed reduction in reimbursement rate when the PSR first announced its consultation earlier this month, it was clear from the start that it still felt the limit was too high – a LinkedIn post by Riccardo Toreda-Ricchi, its Head of Government Affairs, confirmed as much.
Not all voices in the payments, finance and tech spaces were entirely happy with the proposed changes however. For example, Dan McLoughlin, Fraud and Security Specialist at Lynx, a fraud prevention and anti-money laundering (AML) platform, told Payment Expert that a reduction ‘takes away a big part of banks’ financial motivation to prevent fraud’.
Regardless of any changes, the reimbursement policy will come into effect on 7 October – PSR is adamant about this. Whether or not it will stand at £415,000, £85,000, or even £30,000, has yet to be seen.
