back Back

UK’s APP Fraud Law: FinTechs embrace change but banks hesitate

By Gloria Methri

October 08, 2024

  • Aib
  • APP Fraud
  • APP Scams
Share

APP Fraud, Scam, Fraud Prevention, UKAs of October 7, the UK has rolled out major new protections for victims of Authorised Push Payment (APP) scams, a form of fraud that trickles away the trust consumers place in digital payments. APP fraud occurs when individuals are duped into transferring money directly to a scammer, often resulting in devastating financial losses and emotional distress for victims.

Under the new regulations, all payment firms—including high street banks, building societies, and smaller FinTech companies—must follow stringent reimbursement policies. Notably, banks are now required to refund customers who fall victim to scams within five business days, with a reimbursement cap of £85,000.

This move marks a substantial leap in consumer protection, particularly for those making transactions through the UK’s Faster Payments and CHAPS systems, where the stakes can be incredibly high.

‘Could be ruinous for FinTechs’

The FinTech community has delivered a mixed response, with some experts expressing concern over the sustainability of their business models under the new mandatory reimbursement policy.

Martin Hargreaves, Quant’s Chief Product Officer, said, “The huge sums lost to APP scammers means mandatory reimbursement could be ruinous for many FinTechs, given that these firms aren’t bolstered by the massive balance sheets of the big banks.”

“But necessity is the mother of invention. The new rules may propel the entire payments ecosystem to step up its fraud prevention efforts,” he added. “Ultimately, FinTechs that embrace these challenges head-on will not only protect their customers but also set themselves apart as the true leaders in the era of digital finance.”

Marca Wosoba, COO of ZBD, noted that while the regulation is a significant step forward, it must be complemented by broader initiatives. “We need to continue educating consumers about the risks of fraud and scams,” Wosoba urged. She proposed a coordinated effort within the industry to share knowledge about emerging scam tactics and collaborate with social media platforms—often breeding grounds for such fraud—toward a comprehensive fraud reduction strategy.

Anil Nanda, Partner, UK and Europe Payments Lead at Capco, suggested several critical areas for firms to focus on as they look to comply with the new regulations.

“Retail banks must focus on optimising operational workflows to manage increased fraud claims within the 5-business-day reimbursement timeline efficiently. This includes streamlining processes and ensuring dedicated resources are in place to balance operational efficiency with maintaining a high standard of customer service.”

“For PSP aggregators, the priority must be to enhance auditing of PSPs to ensure they have proper systems and controls in place as well as sufficient capital reserves to cope with fines. Finally, PSPs themselves must focus on implementing rapid dispute resolution processes to differentiate between fraudulent claims and purchase disputes effectively.”

Banking Industry Reluctant

In stark contrast to the proactive stance taken by some FinTechs, major banks have exhibited caution. A recent analysis by the personal finance comparison site Finder revealed that only four out of 21 major banks have committed to covering the first £100 of any APP fraud.

These are Nationwide Building Society, Virgin Money, TSB, and AIB. Given that nearly a quarter of APP fraud cases involve amounts under £100, this reluctance to provide guaranteed reimbursement raises concerns about the protections available to vulnerable consumers.

Meanwhile, five banks—including HSBC, Lloyds, and Bank of Scotland—have outright rejected the notion of covering claims below £100, opting instead for a case-by-case review. Starling Bank, on the other hand, has indicated it may impose an excess fee of £50, further complicating the landscape for potential victims.

The Broader Implications

In 2023, APP fraud cost UK consumers nearly £1.2 billion, with victims losing approximately £459.7 million. Alarmingly, only 62% of these losses were recovered. The new regulations promise to increase the total amount refunded. Yet, it remains likely that many victims—especially those losing less than £100—will be left with no recourse under current bank policies.

As the landscape of financial transactions continues to evolve, the UK’s new law represents a critical step toward safeguarding consumers. However, the effectiveness of these regulations will hinge on the collective commitment of both banks and FinTechs to embrace innovation, enhance consumer education, and ultimately foster a safer digital payments environment. As the industry grapples with these changes, the onus is on all players to adapt and protect their customers in an increasingly complex financial world.

Previous Article

October 08, 2024

Paysend and Mastercard launch ‘Paysend Libre’ in Mexico

Read More
Next Article

October 08, 2024

UK finance sector shrinks as tech drives in-house accounting

Read More






IBSi FinTech Journal

  • Most trusted FinTech journal since 1991
  • Digital monthly issue
  • 60+ pages of research, analysis, interviews, opinions, and rankings
  • Global coverage
Subscribe Now

Other Related News

February 13, 2025

Revolut enters Ukraine, launches special edition Clear Sky card

Read More

February 13, 2025

Tabby raises $160m Series E at $3.3bn valuation ahead of IPO

Read More

February 13, 2025

Indian payments startup ToneTag nets $78m in Series B2

Read More

Related Reports

Sales League Table Report 2024
Know More
Global Digital Banking Vendor & Landscape Report Q4 2024
Know More
NextGen WealthTech: The Trends To Shape The Future Q4 2023
Know More
IBSi Spectrum Report: Supply Chain Finance Platforms Q4 2023
Know More
Treasury & Capital Markets Systems Report Q4 2024
Know More