The crucial role of data, technology and collaboration in the PSR bank transfer fraud refund scheme

In an era where digital transactions are the lifeblood of the global economy, the UK’s pioneering bank transfer fraud refund scheme sets a significant step forward for consumer protection and the fight against fraud. The ground-breaking initiative mandates over 1,500 financial institutions reimburse victims of authorised push payment (APP) fraud up to £85,000 per claim.

So, what is APP? It is done with a few clicks of a mouse but AAP cases in the UK alone have surged by 12% last year, with reported losses amounting to £459.7 million. Usually, a scammer gains the victim’s trust and then deceives them into authorising a bank transfer to an account under their control. Their methods are constantly evolving, exploiting victims with offers that seem too good to be true, scare tactics, or promises of financial gains.

Up until now, consumers who lost money had no clear way to get it back, as banks handled refunds on a case-by-case basis. This scheme changes that and provides people with peace of mind as it ensures faster financial recovery as well as potentially reducing the long-term impact fraud can have on people who are less financially stable.

Looking at this from the banks and payment firms’ point of view, the scheme provides strong incentives to continue to improve fraud prevention measures with the new rules establishing uniform protection standards. And there are several key elements financial institutions should consider when integrating these new measures – and APP fraud in general - into their fraud prevention strategies.

The increased role of data and technology

To combat the rise of APP, banks must deploy advanced data analytics and machine learning algorithms. These technologies can help identify unusual transaction patterns and flag potential fraud in real-time. By analysing vast amounts of transaction data, banks can develop predictive models that detect anomalies and prevent fraudulent activities before they occur.

One of the key areas where technology can also make a significant impact is in customer verification. Biometric authentication methods, such as fingerprint and facial recognition, provide a higher level of security compared to traditional passwords. Implementing these technologies can help banks verify the identity of their customers more accurately, reducing the risk of fraud.

The need to take a holistic approach to information sharing 

The new regulations will promote information sharing between the sending and receiving parties, which is a positive step. However, this approach might be too narrow, as fraudsters could be concealing their activities and suspicious behaviour in already-opened accounts not directly involved in the fraudulent transaction.

To address this and shift from a reactive to a proactive stance, a more comprehensive approach is needed. By obtaining a fuller picture of the accounts and activities of suspected fraudsters, payment service providers can better investigate fraudulent activities.

Progress continues to be made in this area. Through the Credit Account Information Sharing (CAIS) scheme, Experian provides access to credit data from lenders, insurers and utility and telecoms companies, which provides a more holistic view on consumer’s past credit behaviour.

Collaboration is key 

As we approach 2025, collaboration is vital to ensure the success of this scheme and for banks to enhance and develop their fraud prevention strategies. Specifically, cooperation in data sharing and innovation will be essential from all industry members to create new processes. Only through such efforts can we reduce losses for both financial institutions and their customers, thereby improving the overall situation for everyone.