The Payment Systems Regulator (PSR) has published its inaugural APP Scams Performance Report, which presents data from the year 2022. This report aims to provide transparency on the state of scams in the UK, offering consumers a comprehensive view of how well their bank performed in addressing APP fraud and treating victims compared to other UK banks.
Here are the six key takeaways from the report:
1. Customer Consequences: Early signals suggest that the media is most concerned with the rate of refunds rather than the strengths of banks’ fraud defences. Refund rates therefore are something we expect the banks to devote more focus to as we move towards a market of mandatory reimbursement. The consumer perception of this information however remains uncertain; will we witness a shift in where consumers decide to do their banking due to enhanced protection offered by selected banks, for example?
2. A Broader Spotlight: Regardless of any specific interest in a particular bank, the report shines a very clear spotlight on the broader issue of APP fraud. Within the industry the interest has been high, and there has also been national coverage. This implies that one of the goals of the report in terms of creating interest in APP fraud would initially be viewed as a success. Specifically, the report highlights the magnitude of the problem and emphasises the need for various parts of the ecosystem, including social media, to take more significant action. It cannot always be down to the banks, for example.
3. Data-Driven Investment Opportunities: We should not overlook that the data behind the report is from 2022, and we are already 10 months into 2023. Banks that react to this data only upon publishing, will suffer from a significant lag effect and find themselves constantly behind the curve and facing the brunt of low league table positioning even if they are making positive steps in the moment.
It is likely that those that have performed well will invest by doubling down on their market campaigns, emphasising security as a factor to entice new consumers. Those who performed badly, on the other hand, may well seek investment to enhance their technology, processes, and people, with the objective of improving their position.
4. Correlation Between Losses and Refunds: The correlation between the amount lost per £m sent and the amount refunded is a significant statistic and should be considered as such. We can broadly categorise banks into three groups based on their strategies and capabilities for protecting customers from APP fraud.
– High Refund Rates, High Loss Rates: Banks in this category focus on customer reimbursement, offering quick resolution despite initial losses.
– Low Refund Rates, Low Loss Rates: These banks excel at protecting customers from suffering APP fraud in the first place. They invest in educational campaigns and strong transaction monitoring capabilities, reducing the chance of ever having to consider a refund.
– Low Refund Rates, High Loss Rates: Banks in this category are the weakest performers, lacking controls to protect victims initially and providing limited refunds when scams are reported.
5. Banks Receiving large sums of APP fraud have Significant Risk Exposure: The report shows a large variation in the value of APP fraud received per organisation as high as £10k to as low as £44 for every £1m received. This has implications as it might imply significant control variation, but it becomes even more relevant given the latest PSR proposal. Under the PSR’s proposals, receiving banks will be responsible for 50% of the liability for APP fraud come October 2024. This necessitates a shift in fraud strategy to monitor both outgoing and incoming payments, as well as addressing mule accounts more broadly. Banks that adapt successfully will experience fewer fraudulent funds hitting their accounts, thus reducing their financial risk exposure.
6. International Implications: The UK is pioneering data publication of this nature. It is often a trailblazer in this sense for global markets, with initiatives on UK shores frequently adopted elsewhere in the world. Media and consumer reactions in the UK will likely be closely monitored in countries such as the USA, Canada, and Australia, where pressure is increasing on banks to better protect APP fraud victims.
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