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Challenger Banks are Enabling the Most APP Fraud Reveals PSR Report

Though payments resulting from authorised push payment (APP) fraud represented less than 0.1 per cent of overall Faster Payments volumes in 2022, Faster Payments were used for 98 per cent of APP fraud payments, finds the Payment Systems Regulator (PSR) in its latest report.

Aptly titled the Authorised push payment (APP) fraud performance report reveals the extent of banks’ abilities to tackle APP scams and how they have helped victims recover from attacks. The report focused on the largest 14 banking groups when it came to victim reimbursement and the amount of money sent from each payment firm as a result of APP fraud. However, when analysing how much money is received by each firm as a result of APP fraud, PSR covered all payment firms in the UK.

The findings include the UK’s 14 largest banking groups, along with the data for ten other smaller firms that were in the top 20 highest receivers of fraud. The smaller firms are included as they represent a
disproportionately high level of fraud received for their size.

In 2022, over 3.9 billion transactions were made using Faster Payments according to Pay.UK. As a result, it is no surprise that there are fraudulent transactions amid the legitimate ones. The report covers 95 per cent of payments made via Faster Payments in the UK, by value and by volume.

Combatting APP fraud
Chris Hemsley, managing director of the PSR
Chris Hemsley, managing director of the PSR

Chris Hemsley, managing director of the PSR said: “This is the first time we can see at an individual level how well banks and payment firms are dealing with APP fraud.

“This represents a substantial improvement in transparency. This provides better information for customers on how firms handle APP fraud and encourages these firms to take more action to tackle it.

“Our approach is working because we know there is a greater focus across many more firms on preventing fraud. Our commitment to transparency and the forthcoming mandatory rules are key to strengthening efforts to prevent these frauds from happening in the first place.

“Over the coming months, we will be bringing all payment firms into new reimbursement arrangements to give more consistent protection across the board. This is important because we can see from today’s report that this has not always been the case.”

Dealing with returns

All of the data included in the PSR report are closed cases. What this means is the directed PSP has completed an investigation of the case and made a decision on whether or not to provide the customer with their lost funds. Although the customer can take the case to the Financial Ombudsman Service, all these cases were excluded from the results.

The top 14 banks differed in their responses to APP fraud losses. TSB ranked as the top bank when it came to the percentage of reported APP fraud losses refunded by value. However, its stats were inflated as it was unable to separate out FOS reimbursements. Nationwide (78 per cent) and HSBC, First Direct (73 per cent) rounded out the top three. Meanwhile, the poorest performing banks were Monzo (22 per cent) Danske Bank (20 per cent) and AIB (10 per cent).

TSB and Nationwide also took the top spots when it came to the volume of fully reimbursed cases with 94 per cent and 91 per cent respectively. Barclays was third fully reimbursing 79 per cent of cases.

Monzo, Dankse Bank and AIB were once again the poorest-performing banks by volume of cases, fully reimbursing only six per cent, seven per cent and 12 per cent respectively.

Sending fraudulent payments

PSR also investigated the extent banks were enabling fraudulent transactions to be sent, knowingly or not.

The findings revealed that challenger banks were facilitating the most fraud. Monzo sent the most APP fraud payments per million transactions (141) with Starling and Metro Bank tying for second place, sending 127. Santander was the next-highest ranking with 117.

However, traditional banks (though perhaps not the most used high street banks) were the ones sending the least fraud per million transactions. The Co-operative Bank saw 53 APP fraud payments per million, AIB 40 and Danske Bank 39.

The report also shows how much money customers at the 14 major UK banks lost to APP fraud for every million pounds they sent. The top four firms with the highest sending fraud rate include TSB, Santander, Metro and Monzo.

For every £1million TSB customers sent in 2022, £348 of that was lost to APP fraud. For Santander customers that is £322 per £1 million lost to APP fraud, and for both Metro and Monzo customers that is £280 per £1million lost to APP fraud. In comparison, for every £1million sent from customers of AIB Group, only £23 was lost to APP fraud.

Analysing the impact

This first report shows the performance of payment firms in 2022, prior to any regulatory requirements that will come into effect. The PSR has been pushing forward wide-ranging plans to tackle APP fraud, including a new reimbursement requirement becoming mandatory in 2024. The new measures will also see both sending and receiving firms being held equally liable for reimbursing victims of APP fraud in nearly all cases.

Significantly, there are currently inconsistent outcomes for customers who report an APP scam to their bank or building society. For example, some automatically reimburse in full, others may only make a partial reimbursement leaving victims to bear part of the loss, and others will only accept claims subject to very narrow circumstances.

The voluntary CRM has delivered some good outcomes and was an important first step in getting some of the banks to do more to tackle APP fraud, but it has not led to consistent performance. While most of the firms who are CRM members have higher rates of reimbursement to victims, several other members performed poorly.

An industry wake-up call
Evgeniy Ivantsov, CMO FYST
Evgeniy Ivantsov, CMO FYST

Evgeniy Ivantsov, CMO FYST, the cross border paytech, commented on the report saying: “The PSR’s APP fraud report marks a significant wake-up call for the payments industry. The PSR’s decision to release performance league tables for payment companies on the issue of APP fraud underscores the growing importance of transparency and accountability in safeguarding consumers and businesses.

“At FYST, we fully endorse this initiative as it fosters healthy competition and encourages companies to raise their standards in combatting fraud.

“These league tables provide a clear picture of who excels in fraud prevention, ultimately benefitting both the industry and its stakeholders. It also offers poorly performing companies a chance to improve their offering. As an industry fraud, APP or otherwise, is a huge area of concern and we must do everything in our power to protect our clients and our consumers from nefarious tactics.”

Looking to the future

The PSR will continue to collect data from payment firms over the next 12 months and will publish 2023’s report next year. It is also working with the FCA to identify where action is needed and will set out plans for payment firms to make necessary improvements. The PSR is also considering how it can collect data which shows where APP fraud originates. The PSR wants this data to raise awareness about the different ways fraudsters can target victims, such as through social media platforms.

New measures announced by the PSR in June 2023 will see mandatory reimbursement requirements in place for victims of APP scams come into force in 2024. The UK’s payment firms have also seen additional interventions from the PSR to improve data sharing to spot and prevent scams, and the roll-out of the name-checking service, Confirmation of Payee.

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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