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To stop scammers regulatory requirements are essential

Sending money to non-enabled CoP bank accounts could have an adverse effect on your bank balance. A well-advised approach before paying someone with any bank that is not using Confirmation of Payee (CoP) should use a credit card. 

Bank accounts are only covered by a voluntary reimbursement code signed by 12 banks. These banks on average reimbursed 40% of the fraud amount. Two individual banks who signed the Code reimbursed under 10%. Credit cards reimburse 100%.

It is 6x safer to use one of the six largest banks using CoP and account for 85% payments than the rest. The 100+ banks that handle 15% of the payments account for 35% of the fraud in 2020 and on trend to reach 60% this year. Fraud isn’t tied to payment volume, but to the lack of client protection which is an open door to scammers.

Fraudsters have accelerated their use of payee bank accounts to non-CoP enabled banks. Then blame the bank for not having this safety feature. In Q4 2020 46% of APP scams were classified as ‘Receiving PSP not CoP enabled’. The trend is even more worrying as it increased by 28% from the prior quarter.

FCA Vulnerability Matters guidance consultation in 21.1.1 notes ‘The decision-making of consumers with characteristics of vulnerability may also be worsened by information asymmetry’. Fraudsters see all customers as vulnerable and the only information required from the payee bank: name (optional), sort code and account number are ideal for fraudsters. Clearly an asymmetry case as banks knows far more about the bank accounts.

FCA noted by not using cohorts of customer data e.g., Fraudsters, who are causing great harm, is not best practise.  Fraudsters transactional behaviours are simple. Money comes into the account and immediately leaves either in total or in parts. These payments are again moved to other accounts, this is called Account Layering in Money Laundering terms. FCA needs to ensure banks proactively analysis the information to help customers from being defrauded.

The fraudsters’ objective is to take money out of any payer account regardless of the emotional and financial distort caused to the bank’s customer.  Contemptible and cheap digital services such as mass texting, emailing and telephone calling with numerous numbers increases chances of their success. The average fraud is £3,000 and many cyber-currency sites request a minimum of £250 in faster payments. Cyber-currency web sites are usually not regulated and offer dream-like riches to investors/victims.

To have victims experiencing these life changing financial and emotional difficulties, and only to realise after the fact, it is their fault for authorising the payment is heart breaking. Changes are needed by the bank/PSPs to increase safeguarding customers. These changes should not impact the efficiency of the payment flows, known as straight through processing (STP), as technology is now capable of analysing millions of transactions in seconds. A re-confirmation of the payment once the bank has received the authorisation to pay gives a second and evidence able warning to the client.

Regulatory overview is necessary to ensure banks have:

Confirmation of Payee (CoP)

Customers knowing the Payee account risk of fraud – from safe to STOP

Re-confirmation of payments for first time payees with clearly labelled warnings

 

NB

Payer bank account is you

Payee bank account when new you is a potential fraudster

Bank accounts are owned and operated by banks

 

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John Bertrand

John Bertrand

MD

Tec 8 Limited

Member since

03 Apr 2020

Location

London

Blog posts

10

This post is from a series of posts in the group:

Banking Strategy, Digital and Transformation

Latest thinking in respect to Banking Strategy, Digital and Transformation. Harnessing our collective wisdom to make banking better. Ambrish Parmar


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