Cutting the push payments fraud cap was a terrible idea

In a move which can only be described as a backwards step, the Payments System Regulator (PSR) has lowered the reimbursement limit for Authorised Push Payment (APP) fraud from £415,000 to £85,000. Like many other security professionals – and fierce consumer advocates – I’m left scratching my head.

This decision, while aimed at easing the burden on banks, is misguided and threatens to undermine the foundations of our fight against fraud. The original cap sent a clear message to banks: prevent fraud or pay. This created a powerful incentive for banks to support their customers and invest in robust fraud detection and prevention systems, reinforcing the integrity of our financial system.

While the PSR claims the change will only affect a few cases, we must consider its broader impact. The new limit leaves victims of high-value scams – such as home-buyers – vulnerable to substantial financial losses without full reimbursement, potentially creating widespread uncertainty.

Crucially, this regulation targets both fraud and money muling, a vital part of the fraud and money laundering chain. Organisations with inadequate controls for preventing money mules stand to lose the most. Those subscribed to the Contingent Reimbursement Model may see outgoing fraud losses drop but must balance this against losses from inbound fraud payments.

The stakes are high: London and UK Crown dependencies see around 40% of the world’s dirty money flowing through its financial systems. It’s imperative that the UK takes a strong stand.

By reducing this cap, the PSR has diminished banks’ financial motivation to prevent fraud. While most APP fraud cases will still fall under the new limit, this reduction signals an unwillingness from banks to accept full responsibility and make the tough decisions necessary to combat fraud effectively.

The timing is concerning. The Financial Ombudsman Service (FOS) reported that fraud cases hit their highest level in at least six years, with a staggering 8,700 cases reported in a three-month period (April-June). The PSR itself declared an eye-watering £341 million was lost, with a third of this amount not reimbursed. With the ongoing cost-of-living crisis, banks need to do more, not less.

This decision may inadvertently incentivise fraudsters, who might view the reduced limit as a less severe consequence for their actions. The shift could perpetuate a cycle of increased vulnerability, potentially attracting more opportunistic scammers to target high-value transactions.

Ongoing lobbying by banking industry groups to delay new rules and decrease payout caps is troubling. It suggests they view regulations as purely punitive rather than as positive steps towards reducing fraud. This mindset must change. Banks are uniquely positioned to combat APP fraud, with access to all the data required to identify and block fraudulent transactions effectively.

Solutions to combat APP fraud and detect money mule accounts are readily available. Artificial intelligence (AI) and machine learning (ML) solutions, particularly those offering seamless integrations, empower institutions of all sizes to adapt to new regulatory frameworks and enhance fraud prevention capabilities.

The PSR’s decision to lower the reimbursement limit is a regressive step in the fight against financial fraud. It undermines the drive for real change and initially exposes customers to sophisticated scams. Rather than reducing banks’ liability, we should incentivise investment in cutting-edge fraud prevention technologies.

The move threatens consumer trust in financial institutions. The lower limit may force consumers to be overly cautious, potentially slowing economic activities that rely on swift, confident transactions. By removing the cap, we’ve diminished the sense of shared responsibility, skirting an opportunity to create a safer financial environment for all.