As of October 7, the UK has implemented new protections aimed at combating Authorised Push Payment (APP) fraud, a rising threat to consumers in the digital payments space. APP fraud occurs when individuals are tricked into transferring funds directly to scammers, often resulting in significant financial losses. Under the updated law, financial institutions, including high street banks, building societies, and FinTech companies, must follow stricter reimbursement guidelines to safeguard consumers.
Banks are now required to reimburse customers within five business days of an APP scam, with a reimbursement cap set at £85,000. This regulation marks a significant leap forward in consumer protection, particularly for transactions made through the UK’s Faster Payments and CHAPS systems.
FinTechs Cautiously Embrace the Changes
While many FinTech companies are on board with the new regulations, some are wary of the financial strain the mandatory reimbursement could place on their business models. Martin Hargreaves, Chief Product Officer at Quant, expressed concerns about the potential financial burden on smaller firms.
“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,” Hargreaves said.
However, he also highlighted the potential benefits, suggesting that these regulations could drive innovation in fraud prevention. FinTechs that proactively tackle these challenges will likely set themselves apart as leaders in the evolving digital finance space.
Marca Wosoba, COO of ZBD, echoed these sentiments, emphasizing the importance of continuing to educate consumers about fraud risks. “The regulation is a significant step forward, but it must be complemented by broader initiatives,” Wosoba urged. She suggested the industry work together to share knowledge about emerging scam tactics and partner with social media platforms—often hotbeds for fraud—to create a holistic fraud prevention strategy.
Anil Nanda, UK and Europe Payments Lead at Capco, added that retail banks and FinTechs must prioritize efficient workflows and rapid dispute resolution processes to comply with the new regulations. He also stressed the importance of PSP aggregators auditing their systems and controls to ensure they can handle fraud claims and maintain sufficient capital reserves.
Banking Industry Hesitation
In contrast to the proactive stance taken by some FinTechs, major UK banks have shown hesitation. According to an analysis by Finder, only four out of 21 banks have committed to covering the first £100 of any APP fraud. These banks—Nationwide Building Society, Virgin Money, TSB, and AIB—are setting a higher standard of protection for vulnerable consumers. Given that nearly a quarter of APP fraud cases involve amounts under £100, this gap in coverage raises concerns about the level of protection available to small-scale victims.
Five other banks, including HSBC, Lloyds, and Bank of Scotland, have rejected automatic reimbursement for claims under £100, opting instead for a case-by-case approach. Starling Bank has suggested it may introduce a £50 excess fee, further complicating the landscape for those seeking reimbursement for smaller losses.
The Wider Impact of APP Fraud
In 2023, APP fraud cost UK consumers an estimated £1.2 billion, with £459.7 million in confirmed losses. Alarmingly, only 62% of those losses were recovered, highlighting the need for more robust consumer protection. The new regulations promise to increase the total amount refunded, but gaps remain, particularly for victims with losses under £100.
APP Fraud: Key Statistics
| Metric | Value |
|---|---|
| Total UK consumer losses (2023) | £1.2 billion |
| Confirmed APP fraud losses | £459.7 million |
| Recovery rate of losses | 62% |
| Share of cases with losses < £100 | 25% |
The new regulations could improve the recovery rate for many victims, but banks’ reluctance to cover smaller losses leaves a significant portion of fraud victims without full protection. As banks weigh the costs of compliance with the new rules, it remains to be seen whether they will broaden their coverage to match the needs of more vulnerable customers.
Adapting to a Safer Digital Payments Future
The new APP fraud law represents a critical step forward in protecting UK consumers from financial fraud. However, its success depends on the collective efforts of both banks and FinTech companies to innovate, educate, and protect their customers. With fraud techniques becoming more sophisticated, the need for collaboration across the industry is more urgent than ever.
The upcoming months will reveal how well these regulations work in practice. Banks, FinTechs, and payment service providers must all adjust their operations, enhance fraud detection systems, and create smoother reimbursement processes to meet the new requirements. As the digital payments space continues to evolve, the industry must remain vigilant and committed to safeguarding consumers from the growing threat of APP fraud.
