Proposed digital fraud refund rules risk excluding many victims

Proposals by the Payment Systems Regulator (PSR) to establish a new fraud refund mechanism risks excluding many victims of authorised push payment (APP) fraud and other forms of digitally enabled fraud by setting a minimum level of reimbursement, retail bank TSB has warned.

Under the proposals, which TSB does in general support, the regulator plans to allow the banking sector to adopt a £100 threshold for repayment, meaning that if the victim lost less than £100, the bank would not be obliged to help.

TSB said this could see thousands of victims denied reimbursement under the new protections, which it has long campaigned for. It pointed out that while cases of APP fraud in which less than £100 was lost account for only about 1% of total monetary losses to fraud in the UK (representing £5m of losses per annum altogether), they also amounted to about a quarter of all fraud cases.

Of those, 44% relate to purchase fraud and 11% to advanced fee fraud, which by its nature has a tendency to victimise the financially vulnerable.

TSB added that younger people would also be disproportionately affected by the plans, with 20- to 40-year-olds accounting for over half of sub-£100 fraud cases.

It claimed the proposals would also exclude a significant number of people who have fallen victim to fraud on social media platforms – Meta’s Facebook and Instagram account for 80% of all purchase fraud cases seen by TSB, while, according to UK Finance, about 70% of all push payment fraud starts online.

“We welcome these moves by government and regulators to increase customer protection from fraud,” said TSB director of fraud prevention Paul Davis. “However, many people simply cannot afford losing £100 to fraud – especially in the current economic climate – and deserve to be protected from increasingly complex scams that often take place on social media sites. TSB’s Fraud Refund Guarantee has been protecting our customers for nearly four years and currently pays out to 98% of fraud victims, including those with losses under £100.”

TSB is calling on the PSR to reconsider these plans, as well as to abandon a proposal to charge victims a £35 excess fee per claim, something it said would disproportionately impact financially vulnerable people amid the cost-of-living crisis.

The PSR first proposed mandating APP fraud reimbursement in 2021, at the same time calling on both banks and tech firms to be more transparent about fraud levels and increase prevention efforts.

Losses to APP fraud in the UK are expected to double over the five-year period from 2021 to 2026, climbing from approximately £666m to £1.32bn in that timeframe, according to figures produced last year by payments software firm ACI Worldwide and analytics firm GlobalData.

“APP fraud is on the rise, and despite many banks stepping up their fraud prevention efforts, this is an issue they can no longer solve on their own,” Cleber Martins, head of payments intelligence and risk solutions at ACI Worldwide, said at the time.

“APP fraud does not happen in silos,” he added. “To contain and stop this kind of fraud, a detailed and holistic view of all payment activity is needed. Financial institutions, social media giants and telco companies need to work together to stop fraudsters in their tracks before the fraudulent transactions take place.”