The APP Fraud Reimbursement.

The mandatory reimbursement requirement for Authorised Push Payment (APP) fraud came into effect on October 7, 2024. Under these new rules, UK payment service providers (PSPs) must reimburse customers who fall victim to APP fraud. Some argue that the responsibility should not fall solely on banks but also on social media platforms and tech firms, as a significant amount of APP fraud originates online and through social media.

What is APP Fraud?

APP fraud occurs when a victim is deceived into making large bank transfers to an account that falsely claims to be legitimate. According to Forbes, it is the most common type of financial scam in the UK. In 2023, 67% of the money lost to APP scams was reimbursed, but these scams still cost the economy around £459.7 million. 

APP fraud comes in many forms. One example is impersonation scams, where fraudsters pose as legitimate, well-known companies (such as banks or delivery firms) to trick consumers into sending them money or other valuable items. Another example is investment scams, in which fraudsters convince victims to invest in schemes or products that are worthless or do not exist.

There has been a steady and worrying increase in purchase scams in recent years. According to UK Finance, APP fraud loss rose by 12% this year, totalling 232,429. A staggering 76% of these cases originated from online sources, and the total amount lost to APP fraud increased by 28% to £85.9 million—the highest loss and case count ever recorded.

The New Law & Reimbursements 

The Payment Systems Regulator and the Financial Conduct Authority have determined that APP fraud is a growing problem. To tackle this issue, the Payment System Regulator has imposed new rules requiring banks to reimburse APP scam victims for their losses. From October 2024, payment service providers (PSPs) must reimburse consumers who have fallen victim to APP fraud. 

Some PSPs may refuse to reimburse consumers who fail to meet the four standards of consumer caution. These standards are as follows: consumers should consider interventions made by their PSP; report the matter to their PSP promptly upon learning of the issue; share required information with their PSP to aid in the reimbursement process; and consent to the PSP reporting to the police on their behalf. 

Was this the right move?

Most agree that victims of fraud should be reimbursed.  However, the question remains: by whom? Many people within the banking industry pushed for a delay of the reimbursement requirement, believing that banks are not solely to blame for APP fraud. As stated earlier, the majority of APP fraud scams occur online, with a dramatic rise in recent years due to an increase in the use of social media and other digital platforms. Due to this, many argue that the responsibility for reimbursements has been wrongly placed on banks and should instead be shifted to technology firms. 

There is an undeniable amount of fraud stemming from various social media platforms. According to the BBC, fraud cases in general have risen by 16%, with con artists stealing more than £3 million a day. Banks have reported that fraud poses a ‘major threat’, raising the question of whether the responsibility for reimbursements should shift towards tech firms, given the clear lack of regulation preventing this. 

The BBC reported that Charlie Nunn, chief executive of Lloyds Bank, stated that ‘80% of financial fraud in the UK occurs through big tech companies’, primarily Instagram and Facebook. He further accuses Meta of ‘enabling customers to be contacted by fraudsters’. The Banker also reported that Ben Donaldson, the managing director of economic crime at UK Finance, believes the technology sector bears no responsibility for reimbursing victims. If social media firms fail to adequately address the root causes of the rise in fraud, they may need to assume greater responsibility in the future. 

To conclude…

APP fraud is a complex and multi-layered issue that requires collaboration between banks and social media platforms. While banks currently handle reimbursements, tech firms also play a critical role in preventing fraud by addressing its roots online. Going forward, a shared responsibility between both sectors is needed to better protect consumers and reduce the impact of these scams in the future.