Payment System Regulator (PSR) Pioneer work on Instant Payment Scams

Why PS24/7 Faster Payments APP scams reimbursement is needed 

From 2017 to 2023 Bank/PSPs retained £1.7 billion, an average of £240 million a year of money dishonestly taken out of bank accounts. The holder of the bank account was held liable and could not reclaim their money.  Over a million cases reported were reported and a further 40% went unreported by the consumer since the bureaucratic processes needed to reclaim the money lost were too onerous.  The scam/fraud victims appealed to The Financial Ombudsman Service who overturned many of the bank/PSP’s decisions against the victim. 

Faster (Instant) Payments are the faster growing payment channel in the world. The UK instigated Faster Payments in 2008. The initiative was to move payments quickly and securely between bank accounts, 24 hours a day. At that time funds took approximately 3 days to move accounts. 

By accelerating the speed of payments economic growth is generated. The same funds can be used many times in the day and creates economic growth. The EU, who are mandating Instant Payments, expects each country’s GDP to increase by 1 to 2% per year. Instant payment is becoming the method of choice for purchases over the internet, and soon regardless of currency.

Financial Services are challenged by Instant Payments

The major issue for Instant Payments is that the technical infrastructure used by the Financial Services is still largely batch processing which does not serve the new, real-time, world.  Apart from the need for real-time payments processing infrastructure the move to instant payments creates a further requirement of ensuring that data and analytics on the customer and bank account is also updated in real-time. Today most bank/PSP systems are updated periodically and often data access has further restraints. Over 90% banks use overnight updating.

PSR Groundbreaking October 2024 Reimbursement Program becomes law

The PSR, unlike many domestic regulators, has adopted a new regulatory framework holding both the Payor and Payee banks responsible on a 50/50 basis for the missing scammed money. This money then is to be returned quickly to the victim, the Payor Bank Account holder. The money owed to the Payor Bank is settled by the Payee Bank. This now provides a compelling financial incentive, £240 million a year, for banks/Payment Service Providers (PSPs) to ensure their institutions are better protected against scammers. The performance of the Financial Services industry by bank/PSP is to be made publicly available to encourage competition.

The PSR adopted a notable regulatory approach by holding both the sending (payor) and receiving (payee) banks equally responsible for reimbursing fraud victims - creating financial incentive for banks to improve their security measures. This contrasts with the EU approach where account owners bear the full liability.

Other countries, notably the EU, are very clear on who is liable: the owner of the bank account and not the bank/PSP involved in the instant payment. The logic is the bank account owner is authorising the payment, not the bank. The bank/PSPs, in many countries including the UK and those countries adapting UK Law, are legally obliged to make a payment even if the instructions are incorrect. 

The Financial Industry’s new goal is verification of the true owner of the bank account

The PSR championed the need to resolve a major omission of the Banking Industry by making certain that the name on the bank account on file is, indeed, the true owner. The industry previously accepted that account number and routing codes were sufficient. This omission is worldwide.  The incoming Verification/Confirmation of the Payee to the Payor Bank addresses this issue. The major mover of international payments, SWIFT, is moving to make certain International Back Account Numbers (IBANs) will in future confirm the real owner of the bank account on file and is the name of the Payee Bank’s customer.

UK government to fold PSR into the Financial Conduct Authority (FCA) 

The FCA welcomes the PSR deep payment knowledge into adopting a more streamlined regulatory environment. This follows complaints from bank/PSPs that they are having to engage with three different regulators which are costing them time, money and resources. While the complaint has some validity, Faster Payments is the world’s rapidly growing payment channel. Instant Payments are totally in sync with the digital economy and the preferred choice of both consumers and fraudsters.

Mandatory payment reimbursement for scammed victims is groundbreaking 

The maiden address by Lord Pitkeathley, the new Labour peer, to the House of Lords focused on the need for Creativity, Adaptability and Leadership in any situation. The PSR has demonstrated this during their tenure.  The PSR created the reimbursement logic which can be used to self-police the practice of supporting bank account holders. It adapted to the levels of reimbursement needed to meet with initial negative industry reaction. The PSR has led the process of bringing in victim reimbursement, first through voluntary operation and then to full regulation in October 2024. This will please the victims of payment fraud and inspire confidence in millions of consumers.  

The future: Instant International Payments and currency exchanges (Fiat and Crypto) 

The UK remains the world’s largest hub for foreign exchange activity accounting for 38% of global turnover. The UK is the world’s financial services net exporter with a trade surplus of £80 billion in 2023. These markets are regulated by the FCA.  

Instant payments for international payments are starting to occur and there is a need for an agreed set of rules around handling fraudulent activity between countries. The UK is held in high esteem in Financial Services globally. The FX market turned over $7.5 trillion a day in 2022. Thanks to the combination of FCA and PSR, the UK can lead the activities currency-corridor by country-corridor, e.g. GBP to USA.

The UK is now in a superb position to lead Instant payment and FX regulations for the world