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New statistics released by the UK payments regulator show how firms have managed fraud and reimbursements. However, the worst-performing firms have accused social media companies of not doing enough to stop scams.
The authorised push payment (APP) figures released today (November 1) by the Payment Systems Regulator (PSR) reveal for the first time the full extent of how well banks and other payment firms performed in tackling APP scams and how they treated those who fell victim in 2022.
For some payment service providers (PSPs), such as TSB and Nationwide, the report will make for easy reading.
However, challenger banks, such as Monzo and Starling, come out far worse.
For example, the percentage of total APP fraud losses that were reimbursed to consumers by each firm in 2022 sees TSB come out on top at 94 percent. Nationwide, meanwhile, is revealed to have fully reimbursed 91 percent of cases.
Monzo in contrast only reimbursed 6 percent of instances in full, while Starling ranked better here at 44 percent. As with Monzo, Starling also ranked high in the volume of APP sent per million transactions.
For every million consumer transactions that Monzo sent in 2022, 141 were reported as APP fraud payments. Starling came in joint second place, at 127 fraud payments, alongside Metro Bank.
The social media problem
When approached by Vixio for comment, a spokesperson for Monzo said “the way to fight back against this crime is to stop it happening in the first place, which is why we’ve invested heavily over 2023 in cutting-edge technology, AI and machine learning tooling to protect our customers”.
“Our customer base is disproportionately affected by purchase scams, 70 percent of which originate on social media — these companies need to take decisive action like we are.”
A spokesperson for Starling mirrored this sentiment. “The PSR data are reflective of the rising number and sophistication of fraud scams that originate over the phone, or through social media, where customers have been deceived into making a payment,” the spokesperson said.
The spokesperson continued that anti-fraud measures have always been in place, and have been strengthened since 2022 — the period the published data covers. “We will continue to do so as we grow and new threats arise. Our fraud prevention team is constantly monitoring emerging threats and adapting our controls and procedures to them.”
“Social media platforms remain a key enabler of scams,” the spokesperson said.
The spokesperson said that at Starling the majority of scams originate on Facebook and Instagram, adding that the bank stopped advertising with Meta back in 2021.
“The fight against fraud requires action between the banks and the platforms and telcos that fraudsters use to find victims.”
A spokesperson for the trade association UK Finance, meanwhile, said that “what the data from the PSR does not show is where fraud starts”.
For example, UK Finance data shows that 94 percent of authorised fraud starts online or over the phone, through social media, fake messages and more.
“But the technology and telecommunications sectors bear no responsibility for reimbursing victims, which means there is little commercial incentive for them to truly tackle the enormous threat that continues to proliferate on their platforms and networks,” said the spokesperson.
“While you can reimburse money, you cannot reimburse the emotional and psychological impact that fraud has on victims,” the spokesperson continued. “We need these sectors to do more with us to protect consumers by preventing these awful crimes from happening in the first place.”
Meanwhile, when approached by Vixio, Chris Hemsley, the PSR’s managing director, offered some hope and said that as the PSR reports on this information in the future, the next step is collecting data on where APP scams originate.
“This will raise awareness about the different ways fraudsters can target victims, such as through social media and telecoms platforms.”
Hemsley continued that the regulator wants all parties to play their part in tackling scams.
“This includes social media and telecoms firms,” he said. “Which is why we want to complete the picture of who is and who isn’t doing enough to prevent these scams from happening in the first place.”
Smaller firms, more fraud
Smaller banks and payments firms, which are not required to submit data to the PSR, have also been accounted for in the report.
Here, the PSR has revealed that Dzing Finance, a neobank that has an e-money licence in the UK ranked high for the volume of APP fraud per million transactions. Here, for every 1m transactions, 187,895 were fraudulent.
Prepaid Financial, another e-money institution, ranked second, but with a much lower number of 7,602.
The value of APP fraud per million delivered different results. Here, for every £1m received into consumer accounts at Clear Junction — the highest — £10,335 of it was APP fraud.
BCB payments came second, with £7,079 of every million received being APP fraud.
JP Morgan Chase ranked lowest on each of these. For example, for every 1m transactions received by consumers at JP Morgan/Chase, 430 of those transactions were APP fraud payments, and for every million in value, £334 was APP fraud.
"Non-directed PSPs received the highest value of APP fraud funds,” said Michael Brown, a partner at Penningtons Manches Cooper.
Brown suggested that this indicates that the fraudsters are opening or operating accounts with these PSPs that do not appear to have such stringent fraud prevention provisions in place as the larger institutions.
“It is much easier for scammers to open an account and carry on receiving fraudulent payments without it getting picked up at these firms,” he said.
Payments firms should focus on reducing fraud
Evgeniy Ivantsov, chief marketing officer at the payments consultancy FYST, said that the report represents “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,” he commented.
Ivantsov continued that league tables like this should provide a clear picture of who excels in fraud prevention, ultimately benefiting both the industry and its stakeholders.
New regulation targeting reimbursement, and the extension of the initiatives like Confirmation of Payee (CoP) and the Contingency Reimbursement Mechanism (CRM), could also reduce APP fraud problems.
“One of the things that will do is make the paying and receiving banks liable 50:50 for reimbursements,” said Brown. “Once all the receiving PSPs face having to cough up 50 percent, they will no doubt tighten procedures, and improve monitoring."
Further, Brown added that new mandatory reimbursement rules will hopefully have a positive impact in combating APP fraud in the Faster Payment system, but that does not necessarily mean that this will bring about the end of APP fraud.
“My concerns are that any payment outside of Faster Payments won't be subject to these rules. Larger payments, or international ones, won't be caught at all, although similar rules for CHAPS payments are being worked on,” he said.
“Although it would be great if the rules caused receiving PSPs to tighten up procedures and monitoring so that fraudsters can't so easily operate accounts, my concern is that fraudsters will shift their activities elsewhere and find some other payment system to target."
