Representing 75% of all global digital banking fraud, and with a 12% increase in reported cases in the UK alone between 2022 and 2023, Authorised Push Payment fraud has emerged as a leading threat for consumers.
In response, the Payment Systems Regulator (PSR) has introduced new regulations mandating the reimbursement of victims of APP fraud, placing increased pressure upon banks and payment service providers to do more to protect consumers from financial loss.
Due to come into force this October, we look at what the new PSR regulations entail, their implications for financial services, and how banks can use Mobile Intelligence to reduce the risk of loss from APP fraud.
What is APP fraud?
Authorised Push Payment fraud occurs when a criminal deceives an individual or business into authorising a payment to an account under their control. Unlike unauthorised fraud, where a criminal conducts a transaction without the account holder's consent, APP fraud relies on the victim's unwitting cooperation. This is most commonly achieved through elaborate impersonation scams, ironically, often by criminals impersonating banks themselves. This type of fraud can be particularly devastating as it often involves significant sums of money, and victims have traditionally been less protected than in cases of unauthorised fraud.
Overview of the new PSR regulations
The PSR’s new regulations are designed to enhance consumer protection and ensure fair treatment of fraud victims. Here are the key aspects of the regulations:
Mandatory Reimbursement: Banks and payment service providers (PSPs) are required to reimburse victims of APP fraud promptly. This mandatory reimbursement shifts the burden of loss from consumers to financial institutions, encouraging banks to implement robust fraud prevention measures.
Standardised Reimbursement Process: The regulations establish a uniform process for assessing claims and reimbursing victims, ensuring consistency and transparency across the industry.
Shared Liability: The liability for reimbursement may be shared 50:50 between the sending and receiving banks, encouraging all payment firms to make more robust fraud prevention efforts.
Clear Communication: Banks must provide clear and concise information to customers about their rights regarding APP fraud and the reimbursement process.
Improved Data Sharing: To enhance the detection and prevention of APP fraud, banks are encouraged to share relevant fraud data and collaborate more closely.
The impact of Mandatory Reimbursement on banks
The new PSR regulations, due to come into effect this October significantly affect banks and PSPs, imposing several critical obligations and necessitating substantial operational changes. Here’s how they impact banks:
Financial Impact: Mandatory reimbursement can lead to significant financial liabilities for banks. They must allocate sufficient resources to cover potential reimbursement claims, which can impact their profitability. The maximum reimbursement limit of £85,000 per claim, matches the Financial Ombudsman Service's compensation limit.
Operational Changes: Banks need to revamp their internal processes to ensure compliance with the new regulations. This includes focussing on fraud detection systems that can better prevent APP fraud from occurring, improving customer communication channels, and streamlining reimbursement procedures.
Risk Management: The shared liability provision means that banks must not only focus on their own fraud prevention measures but also ensure that their partners and counterparties are equally diligent. This necessitates enhanced risk management and due diligence practices.
Customer Trust: While the regulations impose new burdens, they also offer an opportunity for banks to build trust with their customers. By demonstrating a commitment to protecting their account holders and swiftly addressing fraud cases, banks can enhance their reputation and customer loyalty.
Reducing the impact of PSR regulations
Cyberthreats and fraud are among banking executives top concerns. With fraud volumes already at risk of overwhelming fraud departments, and a tsunami of AI enabled fraud looming large on the horizon, the new PSR regulations turn up the heat more than ever for decision makers. Imposing several critical obligations upon banks and PSP’s, and firmly placing the emphasis upon prevention, banks must seek smarter, more sustainable solutions to the increasing threat of fraud.
Thankfully help is at hand to counter the criminals in the form of Mobile Intelligence. With greater collaboration between telcos and financial services has come a range of innovative fraud protection solutions that utilise real-time mobile operator data. At JT we partner with the UK’s mobile network operators, and collaborate with UK Finance and the GSMA to bring APP fraud and account takeover solutions to the financial services sector.
Here’s how Mobile Intelligence is helping banks stop APP fraud and reduce the costs of fraud prevention.
1. Providing critical real-time mobile operator data:
Customer accounts are always at risk of being compromised and taken over by criminals, whether to steal funds or to use customers for mule accounts to launder the proceeds of crime and terrorism. APP fraud itself is characterised by criminals coercing victims over the phone, tricking them into authorising payments to accounts in their control. JT's Scam Signal solution is providing the unique opportunity to spot the subtle signs of APP fraud. From here banks can more effectively create preventative rules to counter threats before they lead to permanent financial loss.
2. Balancing user experience with cybersecurity:
As open banking has created greater competition within financial services, user experience has become the primary differentiator. Mobile Intelligence solutions are helping to add greater safeguards from financial fraud and deception while providing fantastic friction-free experiences that don’t impede customer journeys.
3. Improving customer communication:
MoneyGuard from JT Mobile Intelligence is an innovative automated fraud alert and customer engagement system that is helping banks all over the world to significantly reduce their fraud costs.
MoneyGuard communicates with internal fraud engines and deploys omnichannel fraud alerts to account holders. This rapidly resolves up to 70% of false positives, reduces the need for investigation and the reliance upon manual intervention and calls centres. It also reduces potential customer friction from false positives, improving user experience, trust and loyalty.
4. Reducing the costs of fraud prevention:
Return-on-investment is critical for future fraud prevention. While additional resourcing can alleviate the pressure in the short term, it’s not a sustainable approach given the expected volumes, and that labour costs are a significant contributor to the costs of financial crime. Mobile Intelligence is providing more effective fraud detection and prevention rates, and with it an opportunity to reduce the costs of fraud.
Conclusion
The need for better protection from fraud is now. Our increasing demand and reliance on mobile banking and financial services continues to create huge opportunities for scammers. However despite significant losses and challenges there's a lot to be optimistic about. Greater cross-industry collaboration is bearing fruit and Mobile Intelligence is proving to be an integral part in the fight against mobile enabled fraud. To find out more about Scam Signal and the rest of JT's Mobile Intelligence solutions contact us today using the form below.
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