Reimbursement Strategies Drive Down APP Scam Losses in UK

Despite making some progress in tackling authorized push payment scams, smaller payment firms still struggle with high fraud rates compared to large banks, as highlighted in a report by the U.K.’s Payment Systems Regulator.

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The overall financial impact of APP scams is declining, even though the frequency of these scams is increasing. This improvement is partially due to voluntary reimbursement guidelines that prompted banks to invest in enhanced controls, allowing them to closely scrutinize incoming credits, according to the report.

Under the existing voluntary reimbursement framework, banks reimbursed 67% of money lost to APP scams in 2023, up from 61% in 2022. Currently, only the sending bank reimburses the customer, ignoring the role that receiving firms could play in preventing scammers from accessing the U.K.’s payments systems.

Typically, smaller firms receive disproportionately higher rates of APP scams compared to the 14 largest banking groups in Great Britain and Northern Ireland. For example, for every 1 million pounds received into Skrill’s accounts in 2023, 18,550 pounds was of it was from APP scams, the report says. For larger, more established firms, the report says that for every 1 million pounds received into TSB accounts in 2023, 408 pounds of it was from APP scams.

“We can see some positive changes with more victims being reimbursed than in 2022. But there is still more to do – particularly for some smaller firms which have much higher rates of receiving fraud than larger firms,” said David Geale, managing director of the PSR.

Banks in the U.K. are working on multiple approaches to reduce APP scams prior to the October deadline of the Contingent Reimbursement Model Code, a voluntary code that sets industry standards for fair reimbursement practices.

Confirmation of payee and overt scam warnings when making online or mobile payments contributed to a lower loss for APP scams, the agency said.

The Power of Reimbursement

The U.K. experienced a 12% decline in APP scam value, mostly at the 14 largest banks. One of the key factors driving this downward trend is the rise in reimbursement rates. These are largely driven by members of the CRM Code CRM members reimbursed 68% of the fraud value back to consumers in 2023.

Nationwide fully reimbursed in 96% of the APP scam cases reported to it, TSB fully reimbursed in 95% of cases and Barclays fully reimbursed in 82%.

Cutting-Edge Scam Prevention

Behind the scenes, banks are bolstering their defenses with advanced scam detection technologies and dynamic warning alerts while making real-time payments. Larger banks are investing in real-time monitoring systems and educational initiatives that empower customers to recognize and avoid scams.

Looking Ahead

The introduction of a mandatory reimbursement framework in October 2024 promises to further strengthen defenses against APP scams. This new requirement will hold both sending and receiving firms accountable for reimbursements, incentivizing all parties to enhance their fraud prevention measures.

Efforts to hold receiving banks more accountable for mule accounts and scams are ongoing globally. Australia and Singapore have already implemented strong policies for receiving banks, and Nacha, which operates the ACH network in the U.S., is introducing risk management tools designed for receiving banks to help them identify and address mule accounts and scams.

“The idea is to make all receiving banks, including the smaller banks, responsible. And these are not high-end tools that we are recommending. These are basic risk management practices which, if implemented properly, can go a long way in reducing the problem of money laundering and scams” a senior official at Nacha said.