According to the UK Payment Systems Regulator (PSR), in 2023, approximately 4.5 billion transactions were made using the Faster Payments system.
At the same time, over 252,626 cases of APP Fraud (APPF or authorized push payment fraud) were reported, totaling around £341 million. Other reports put the number far higher.
For individuals who are victims of these types of scams, reimbursements depend largely on the institution they were using when they were defrauded.
New mandatory reimbursement requirements have been designed to further protect consumers from APPF. These new regulations are scheduled to go into force this coming October. However, not everyone is convinced the new rules will have the intended results. Ariel Shoham, VP of Risk Product at Mangopay, believes the new rules will have the unintended consequence of fueling a certain type of fraud.
Shoham shared a comment with CI regarding his concerns.
“The upcoming regulation mandating that PSPs [payment service providers] reimburse the victims of fraud has been developed with good intentions: to protect consumers from social engineering scams and subsequent fraud. However, as an unintended consequence, the industry is likely to see a dramatic increase in first-party fraud – i.e., consumers falsely reporting that they have fallen victim to APPF so that they can claim funds back.”
Shoham explains that, as it stands today, payment providers will only have one way to protect themselves from first-party fraud—they must block both actual APPF and first-party fraud in real time.
“In order to block fraudulent payments before they ever go through, PSPs must analyse thousands of relevant data points from across their own platform and the dark web in milliseconds,” says Shoham. “Including dark web insights is absolutely crucial because bad actors are constantly evolving their approaches to fight PSPs’ fraud prevention tactics. This means that PSPs cannot rely solely on the data captured by previous legitimate and fraudulent transactions. They must be able to apply the latest fraud tactics being developed and even sold on the dark web. Fraud-as-a-Service is growing dangerously fast, and without oversight of this illegal activity, PSPs will end up being the biggest victims of first party fraud and social engineering.”
Shoham is not alone in his concern. The Payments Association has requested that PSR hold off instituting new rules for another year. For now, it appears the new rules will move forward with payments platforms working to block all fraud attempts.