The UK’s Payment Systems Regulator (PSR) is consulting on a proposed lower cap on the maximum amount that banks and payment firms would have to payout to victims of authorised push payment (APP) fraud, following a review.
It comes after some payment service providers (PSPs) had voiced concerns about the £415,000 maximum reimbursement value per claim outlined by the PSR in December last year.
The PSR is proposing a new £85,000 cap per claim, ahead of the APP fraud reimbursement scheme taking effect on 7 October 2024.
The incoming scheme is intended to “significantly” increase the incentives on all payment firms to do more to detect and prevent APP fraud from happening in the first place, by splitting the cost of reimbursement 50:50 between sending and receiving firms, and will be the first time incentives have been put in at the receiving end.
The new cap, if confirmed, will still see more than 99% of claims, by volume, covered.
Should the new cap be introduced, it would be in line with the Financial Services Compensation Scheme (FSCS) limit, which is currently £85,000 and is “well understood by consumers”, according to the PSR.
The previous £415,000 cap detailed in December 2023, had been in line with the Financial Ombudsman maximum reimbursement limit at that time.
The regulator confirmed that the implementation date of 7 October for the APP fraud reimbursement scheme remained unchanged.
The new “evidence-based” proposed cap follows a review by the PSR into high-value APP fraud claims. It found that out of over 250,000 cases, there were 18 instances in 2023 of people being scammed for more than £415,000, and 411 instances of more than £85,000.
Its analysis also revealed that almost all high-value scams are made up of multiple smaller transactions, which the PSR said points to a reduction in the effectiveness of transaction limits as a tool to manage exposure.
The regulator said that its reimbursement requirements represent “a significant shift” in both consumer protections and demands on PSPs.
PSR managing director David Geale
David Geale, the PSR’s managing director, said: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach.
“As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance.”
He added: “Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”
In a statement posted on LinkedIn, Pay.UK wrote: “We continue to progress at pace in our role to facilitate and monitor compliance with the policy and we remain ready to go-live on 7 October 2024.
“We will continue to work with the PSR and wider industry in accordance with any changes resulting from the consultation as we work to deliver effective fraud detection and prevention products and services.”
Industry reaction
Stefano Vaccino, founder and chief executive officer of Yapily, told Open Banking Expo: “The ultimate goal with the APP reimbursement scheme is to protect consumers. They’re our, the industry’s, and the regulators’ priority and they’re the ones who need to see the most positive impact from any decision. Thankfully, we believe the lowering of the cap is a very welcome step towards achieving this.”
Vaccino said that the proposed £85,000 cap still provides “measured, balanced and robust protection” from scammers and that it does so “without introducing other risks, including potential exploitation by fraudsters and severe financial consequences for many fintechs”.
“Specifically, for Yapily a key risk was that, due to the high level of liability, more legitimate payments could be rejected as part of the banks’ fraud monitoring processes. The new cap doesn’t fully make this problem go away, but when it’s considered alongside other initiatives like Transaction Risk Indicators, it should hopefully help legitimate payments flow,” Vaccino explained.
He said that Yapily was not alone in “voicing concerns about the potential for abuse and the strain on smaller businesses of the initial cap”.
“The new limit strikes a more reasonable balance, protecting consumers while also ensuring that all businesses can continue to innovate – an aim that we all share.”
Janine Hirt, CEO of Innovate Finance
Janine Hirt, chief executive officer of Innovate Finance, called it “positive” for consumers and for the competitiveness of UK fintech, and said £85,000 will provide the same level of protection as bank deposits, while reducing payment firms’ exposure to the risk of fraudsters themselves exploiting the new rules.
Hirt identified some areas of concern that remain, including that the PSR “is still proposing that many cases which British courts have judged as gross negligence – such as ignoring repeated warnings from their bank or lying about a payment – would still be eligible for reimbursement”.
“Today’s review by the regulator demonstrates that they have listened to our repeated warnings about a high maximum reimbursement negatively impacting competition in the sector. We now need to see the same commitment from the PSR to review other details of the regime in order to guard against unintended consequences,” she added.
The Payments Association’s director general Tony Craddock said: “Our concern, which we expressed multiple times throughout the past few years both publicly and privately to government and regulators, was for the negative impact this sum would have had on the economy, the payments sector and the consumer.
“We will continue to encourage initiatives that prevent fraud in the first place. We still don’t have legislation that involves tech giants, such as social media platforms, where a significant number of these cases begin. Scrapping fraud at its source is the most powerful way to ensure consumers don’t fall victim to a scam.”
The PSR’s David Geale and Innovate Finance’s Janine Hirt are both speaking at Open Banking Expo UK & Europe on 15-16 October in London – click here to find out more and get your ticket.
