It's a good time to be alive... if you're a faster payments fraudster

Imagine you are a fraudster swindling unwitting consumers out of their hard-earned savings. You'd have to agree, it's a good time to be in business. Most banks don't spot you before you complete the scam. They are powerless to stop you. And they haven't a hope of tracking you down once the money reaches you. 

Official statistics tell us that 250,000 UK people lost almost £500 million to Automated Push Payment (APP) scammers last year. The same reputable sources tell us, however, that these numbers are likely to be under-reported by as much as ten times. It’s become a potentially £5 billion a year industry. 

Since 7 October, new rules handed down by the Payments Systems Regulator require every UK retail bank to reimburse customers for fraud losses up to £85,000 per case.

Such a move is hugely commendable, welcome and essential for consumer wellbeing. It demonstrates an industry commitment to protect innocent people against highly sophisticated, global, organised crime. 

What the PSR’s mandatory reimbursement doesn’t do, however, is move the industry any step closer to detecting and preventing fraud in the first place. 

Consumers may now be able to restore their savings after scams, but the colossal financial burden of fraud loss is only being shifted, not removed. 

Industry needs to stop pointing fingers over who carries the burden of losses, and start innovating and thinking creatively to get ahead of the fraudsters and stem the flow of losses altogether. Until then, the scammers will keep coming, aided by AI which makes their illegal lives even easier.

Detection and prevention are priorities for banks already, but the current system they use universally is fundamentally flawed: greater friction in the payment process. Most banks employ the same, universally generic friction to encourage their customers to take responsibility for the payments they go on to make. They will bombard customers with zero-context warning screens and videos, and several stages of consent, regardless of the unique details of the specific payment being made. 

There’s a commonly held belief that ‘faster payments means faster fraud’. Right now, there’s truth in that idea. It’s wrong, however, to assume that the opposite is also correct. Slower payments do not mean slower or fewer scams. 

At Tunic Pay, the banks we work with show us through study after study that generic warnings don’t prevent fraud. The friction created is not causing consumers to increase their own self-education of the inherent risks of paying people they do not know. Shockingly, some studies even show that past victims of scamming are no less likely to fall victim again. Friction has its place, certainly, but placing all the onus on consumers to be more educated and vigilant is unsustainable. 

Scammers thrive on anonymity. Concealing all information about themselves is critical to a successful scamming spree. In the fraud detection world, we call this information asymmetry. 

This is the area that banks need urgently to fix. Just like Open Banking has transformed consumer access to financial and credit services, and closed-loop systems like PayPal have made transfer of funds safer, opening connecting and sharing verifying information about senders and recipients will transfer the faster payments system and cut off a fraudster’s lifeline. 

But banks can not fix the problem for themselves. Financial technology innovation has an opportunity here and UK fintech is leading the way. Prompted or encouraged by the PSR’s decision to apply more pressure on banks to reimburse fraud losses, UK banks are more open than ever to finding ways to share information between one another, enabling them to keep payments faster where they are proven to be safe, and pausing and interrogating the ones where the recipient’s information raises red flags. 

While stuck in their information silos, banks know everything there is to know about their customers - but they haven’t a clue who those customers are sending their money to. This is a gift to fraudsters - from the have-a-go chancers to the global organised crime networks. It’s time to make the life of the APP fraudster a whole lot less appealing.