Global: UK Implements APP Fraud Reimbursement Rule, Banks to Compensate Victims

A significant shift in how UK banks and payment firms handle fraud takes effect starting Monday (Oct. 7), as organizations are now required to reimburse victims of Authorized Push Payment (APP) fraud up to £85,000 ($111,000).

The Payment Systems Regulator (PSR) initiated the new rules following a rise in APP fraud, which occurs when individuals are deceived into transferring money to fraudsters posing as legitimate entities. According to a report by the PSR published in August, APP fraud cost UK residents $433 million in 2023, though this figure represents a 12% decrease compared to 2022. However, the number of fraud cases rose by the same percentage.

Initially, the PSR had proposed a higher reimbursement limit of £415,000 ($544,000), but the £85,000 cap was later introduced. Industry groups, such as the Payments Association, had lobbied for the PSR to delay the rule’s implementation, citing concerns about the impact on the payments market.

Riccardo Tordera-Ricchi, head of policy and government relations at the Payments Association, expressed concerns in June, stating that moving forward with the reimbursement plan could raise the prudential risks and operational costs for participants in the UK payments ecosystem. “It will also result in increased costs and friction in real-time payments, and diminish investment in the UK FinTech sector due to heightened risks and reduced profitability,” he said.

One point of controversy surrounding the new rules is the £100 fee banks and payment companies can charge when settling fraud claims. While some argue that the fee will encourage consumers to be more vigilant against APP fraud, consumer groups have raised concerns. They note that 32% of APP fraud cases involve sums of £100 or less, meaning many consumers could lose money even after being reimbursed.

In addition, technology platforms are under pressure to take a more active role in combating APP fraud. UK payments and FinTech firms argue that many scams originate from social media platforms.

For example, Meta recently announced a data-sharing initiative with MetroBank and NatWest aimed at safeguarding customers from fraud. However, Woody Malouf, head of financial crime at Revolut, criticized the initiative, calling it insufficient. “What the industry really needs are giant leaps forward, not baby steps,” Malouf told CNBC. He also pointed out that social media platforms currently bear no responsibility for reimbursing fraud victims, giving them little incentive to take substantial action.

As the new regulations roll out, the debate over how best to combat fraud and balance consumer protection with industry costs is likely to continue.