APP fraud claims: PSR report calls for collaboration and transparency

by George Iddenden

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The Payment Systems Regulator (PSR) has published its report detailing the latest data on the pressing issue of APP fraud scams.

APP fraud occurs when fraudsters manipulate individuals into transferring funds to accounts beyond their control, accounting for 40% of fraud losses in the UK last year.

The report offers a comprehensive overview of how the 14 largest banking groups in the UK performed in the issue of tackling APP fraud in 2022.

It covers key aspects such as victim reimbursement, the volume of APP fraud sent, and received. The report also includes data from nine smaller firms among the top 20 receivers of fraud.

On the release of the report, PSR managing director, Chris Hemsley, wrote on LinkedIn: We [have taken] an important step forward on transparency on APP fraud.

“One part of our programme of work to prevent APP fraud and protect victims. Next year, our mandatory rules will take effect, while we also work to extend transparency to cover social media and telecoms firms.”

The report claims there is a lack of consistency when it comes to customers reporting on APP fraud to their Payment Service Providers (PSPs).

According to the data, claims made are handled significantly differently from PSP to PSP, with some customers receiving full refunds, while others only receive  a partial reimbursement so that they bear a portion of the cost.

In certain cases, claims are only considered under very specific conditions. This inconsistency is partially due to differences in PSPs’ membership in the Contingent Reimbursement Model (CRM) code, which sets guidelines for reimbursing APP fraud victims on a voluntary basis.

While most CRM code members tend to provide higher rates of reimbursement, some have lower performance. Noting the report, the incidence of fraud remains relatively constant across major PSP groups.

According to the regulator, the new reimbursement measures are expected to reduce the variation in how these claims are handled. Ongoing monitoring and collaboration with the industry will be crucial in ensuring that customer outcomes become more uniform.

The PSR’s hopes that its equal liability split will also incentivise firms to work together in addressing any vulnerabilities in their fraud prevention systems moving forward.

Jane Jee, lead of The Payments Association Project financial crime working group has welcomed the release of the report which gives greater transparency to the issues, however still believes there is work to be done.

She said: “The current PSR proposals for reimbursement do nothing to incentivise increased data sharing between all regulated entities (not just senders and receivers) and nothing to encourage third suppliers to develop the technology required to minimise such fraud across the whole payment industry.

“Sadly they could place an unfair regulatory burden on smaller regulated entities which mitigates  against  increased competition which is the hallmark of a healthy payments sector.”

Riccardo Tordera, head of policy and government relations for The Payments Association, added: “We welcome the report which gives a better understanding of the problem.

“It’s good to see that the PSR outlines some further proposals to fight fraudsters and encourages more data sharing and confirmation of payee.

“Nonetheless, we must see more concrete efforts from the PSR into bringing every player, including big tech, to the table.

“We still think the threat of making the burden of reimbursement fall on the industry fails to discourage fraud and will likely incentivise first party fraud.

“We hope that between now and the implementation phase of the reimbursement there will margins to change this approach that will ultimately undermine the competitiveness of the UK payments sector.”

You can read the full report from the PSR here.

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