How do you solve a problem like protections in interbank payments?

27/01/2021

APP scams

by Genevieve Marjoribanks, Head of Policy

When it comes to protections in interbank payments, we’ve spent a lot of time thinking about whether more needs to be done. Since the PSR began, we have been interested in the protections available in interbank payments – you only have to look at our work on protections and prevention against Authorised Push Payment (APP) scams to see that this is an important subject for us.

Last summer, I wrote two pieces that focused on improving outcomes for victims of APP scams, and referred to a new piece of work that would look at what protections are available in interbank payments. In this latest piece, I want to give you a bit more of an idea about how our work in these areas is shaping up.

APP scams

Protecting people from APP scams continues to be a key priority for the PSR. There’s been so much progress in this space, but even with the protections that come from Confirmation of Payee, we need an ongoing effort to stop these frauds from happening in the first place, as well as continuing to look at protections for people who do fall victim.  

When the industry-led Contingent Reimbursement Model (CRM) Code was launched in May 2019, it marked an increased level of protection for victims of this devastating crime who acted appropriately and yet still suffered a loss. 

Since its introduction, we’ve been monitoring outcomes under the Code. And while the Code has improved outcomes for consumers, we don’t think it has gone far enough. We estimate that 40 - 45% of APP scam losses are making their way back to victims.  

To date, we’ve been restricted to advocating industry-led approaches to tackling APP scams because of requirements stemming from European Union (EU) law which are still in place in domestic law. Even though we currently still face these restrictions on requiring reimbursement for APP scams, it’s possible that these restrictions could be lifted in the future. In light of the evidence we’re seeing on customer outcomes under the Code, we want to be ready to take appropriate action should the restrictions be lifted.  

That’s why we’ve been speaking with the Treasury about the legislative restrictions that are currently in place through the Payment Services Regulations (PSRs) 2017. While these regulations continue to form part of UK law after EU exit, it is open to Government to legislate in future to remove these restrictions, meaning the PSR could then look to require reimbursement for APP scam victims if appropriate. 

In the coming weeks, we will launch our Call for Views asking for comments on the nature and scale of the issues we’re seeing with the Code and some potential solutions to significantly reduce APP scam losses incurred by customers. We want to know more about what our stakeholders think about the data we already have, our current analysis of what’s driving the Code outcomes and views on our proposed measures. 

We know that the Lending Standards Board has been reviewing the Code, and we don’t want that work to stop. But at the same time, we don’t want to rely solely on the Code review, particularly as we have yet to see improvements following our roundtable last year.  

We want to see a significant reduction in the losses that consumers are suffering because of APP scams – whether that’s via our proposed solutions in our Call for Views, via improved outcomes under the Code, or via another approach.

Protections in interbank payments

While we carry on with work on APP scams, we’ve also said that we want to look at protections in interbank payments more widely. Our goal is to ensure the payments industry continues to improve their services in the interest of those who use the current interbank systems to make payments. This includes making sure that adequate protections are in place that protect payers when for instance their payment isn't processed as intended or when they use interbank payment systems to make purchases.

More and more of us are using digital payments more frequently – and that’s because they’re convenient and easy to use. But if Faster Payments continue to grow and become an increasingly used payment alternative in shops, what does that mean for the industry in terms of being prepared and making sure users of the systems are protected?

It’s an interesting subject and one we’ve been carefully considering. This is also something of a hot topic across the industry with considerations being made by other organisations. But our work complements and builds on the foundations that have already been laid.

Innovations, including those developed through open banking, continue to improve opportunities for retail payments over interbank payment systems, and especially Faster Payments. Of course, the innovation is a welcome move – but with innovation, we also must make sure that new propositions and services are reliable and secure.

As things stand, consumers may find they only have a limited set of remedies available to them when something goes wrong with their interbank payment. It could be that the existing protections and liabilities do not always give consumers an appropriate level of protection when they make interbank payments. We think there may be several reasons why payment providers are unlikely, on their own, to improve the level of protection offered especially for interbank payments used to purchase a good or service.

Our next steps

On that basis, at the same time as we issue a Call for Views on new initiatives to protect people from APP scams, we will also issue a Call for Views on consumer protection for interbank payments. This will allow us to assess the best way to improve effective consumer protection that benefits both consumers and businesses, so they feel comfortable using interbank payments.

Of course, we’ll let all our stakeholders know when these are available. These ideas are big steps in the continued development of the UK’s payment systems, and we must get these right so they can stand the test of time and make sure world-leading payment methods are available to everyone.