Key insights: October 2024 APP fraud reimbursement policy changes

The new APP fraud reimbursement policy has not been without contention. The Payments Association (TPA) has raised significant concerns about the potential impacts of these regulations. In a letter to City minister Bim Afolami, thirty members of TPA outlined several key issues that could affect smaller fintech companies and the broader financial services landscape.

Concerns raised: Robert Courtneidge, board advisor and payments expert at TPA, has highlighted that the proposed mandatory reimbursement scheme could threaten the viability of smaller fintech companies. He states, “The maximum per claim reimbursement threshold of £415,000 is considered both disproportionate compared to average losses for individuals of less than £2,000 and also illogical as a mandatory amount that must, in most cases, be paid out in 5 working days without any chance to properly review a case.”

Courtneidge further explains, “The Financial Ombudsman, from where the limit was taken, would never be able to review a claim in this timeframe. Even with the longest timeframe with the ‘stop the clock’ invoked of 35 working days, any similar claim in court for this value would take years and be very thoroughly reviewed. This timeframe for review and payout is irresponsible, making it impossible to allow for proper review of claims.”

He argues that this high threshold could lead to significant additional costs, making many payment service providers economically unviable and potentially forcing them out of the market. “Please understand, we are not saying to remove the higher limit, but to give sufficient time in the (less than 5%) of cases above the £30,000 threshold (suggested by us) for the sending and receiving banks to conduct a proper review to determine if there was fraud and if the criteria (which need to be decided) have been met so that the victim should be reimbursed. Without a proper dispute resolution mechanism and thorough scrutiny of cases, the UK will fail one of its most important industries.”

Impact on competition and innovation: TPA emphasised that the new rules could stifle competition and innovation in areas such as open banking and digital challenger banking. They noted that the increased costs associated with the mandatory reimbursement scheme could create higher barriers to entry for new players and make it more difficult for challenger banks to compete with established incumbents.

Consumer and industry risks: The association also expressed concerns about the potential for increased first-party fraud and moral hazard, as the near-100% reimbursement policy could be exploited by fraudsters. They pointed out that without clear criteria for consumers to act cautiously, the policy might inadvertently encourage riskier behaviour among consumers.

Call for a balanced approach: The Payments Association urged for a more balanced consumer standard of caution and a lower per claim upper liability threshold. They suggested reducing the threshold to £30,000 and implementing measures to incentivise consumers to exercise greater caution. Additionally, they called for delaying the reimbursement obligations until the necessary industry utility for managing reimbursement reporting and settlement is operational.

Need for multi-stakeholder involvement: Highlighting that 77% of all APP fraud cases originate online, TPA stressed the need for social media platforms and telecommunication providers to play a more active role in preventing fraud. They advocated for these entities to share the costs of mandatory reimbursement and participate in new data-sharing requirements to mitigate fraud risks at the source.

These concerns underscore the broader tension between regulatory demands and industry readiness. The Payments Association’s recommendations aim to ensure that the new reimbursement rules are both effective in protecting consumers and sustainable for the industry, particularly for smaller fintech companies.