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Summary
Should the movement to defer the Payment System Regulator’s (PSR) mandated regulations for a year beyond the proposed start date of October 2024 then, at the current rate, a million bank account holders will be scammed out of £480 million. The banks will lose £240 million and so will the victims every year until the situation changes.
Fraud is not just Financial Loss
Fraud is underestimated. It is a serious offence and an unrecognised problem. Everyone with a bank account is an active target for fraudsters, yet The public and public bodies do not always consider the possibility of fraud when conducting their activities. Even when they do, it is difficult to define, measure and articulate the problem. The focus is too often centred on financial loss when, in fact, the impact of fraud goes beyond money. Fraud can cause lasting mental and physical trauma and sometimes cause people to take their own lives.1
The public expect the banks to be more diligent towards fraud. In the past paper cheques dominated payments and the banks inspected everyone, compared the signatures on file and had days to approve them. Now with instant payments the money moves in milliseconds and customer information needs to be verified in near real time. Fraud has gone from a few times a month to many times a second.
The Fraud problem:
The reasons for dilution and delay aimed at the new regulations are:
The industry-funded Payments Association has urged the new UK Economic Secretary to the Treasury, Tulip Siddiq, to reduce the mandatory reimbursement for APP fraud from £415,000 to £30,000. Currently, the average cost of fraud for people is £3,200 and businesses £95,000. More than 98% of fraud can be covered by a cap of £85,000. This is the same amount as bank deposits are covered should a bank fail.3
In addition, banks are requiring an extension of at least 12 months to prepare for the new regulations. This means at least a million people will experience a scam with half the scammed amount not reimbursed.
The new mandated scheme replaces the voluntary reimbursement program which has shown massively different outcomes – TSB reimbursed over 90% to customers while Monzo, Dansk Bank and AIB fully refunded less than 10%.
The second part of the new reimbursement rules is the Payee Bank reimburses the Payer bank 50% of the amount scammed in a reasonable timeframe, say, for example, 30 days from the time of the scam. These payments can be made bilaterally and fit into the current data sharing model. The need for a fraud hub that allows sharing of scammers information for all banks and law enforcement has been debated since 2015, but client confidentiality has ruled the day. However, it’s good to see just recently a group of banks thinking of coming together to offer such a hub.
Digital Age = real time: banks to be near real time for data and payment
New regulations are coming in the form of an EU mandate, starting in October, to grow Instant Payments. The major policy difference is the EU makes the customer responsible for the liable of scammed and mis-directed payments. The EU sees the future as instant payments as do a further 80 countries.
The UK was among the first to implement faster payments, as a regulatory requirement, to speed up payments in 2008. FCA wants to protect vulnerable people and reimbursing those scammed is a call to action. The growth in scammers using multiple bank account mule networks is a clear indication that banks to get near real time payments and data to tackle fraud.
The banking industry has a history of delaying new regulations. Often by extending the deadlines of agreed to regulations. This harms entrepreneurs who see opportunities within the agreed, Parliament and UK time frame and start investing. Only to find dates are slipped, action deferred, and the resources used to solve the issues lost.
Sources:
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Edvards Margevics Co-partner at CONCRYT
30 August
Ellen Roberson Global Marketing Advisor, Risk, Fraud & Compliance at SAS
Patrick Bermingham CEO at Adflex
29 August
Ben Lane VP of Colleague Experience Group at American Express UK
28 August
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