The payments industry has warned the government that proposals to tackle authorized push payment (APP) fraud could have “unintended consequences,” including making scams more prevalent.
APP fraud occurs when a scammer posing as a trusted entity tricks a victim into transferring money to a bank account under their control. Common examples include crypto and romance scams.
As the victim initiates the payment, banks in many countries refuse to refund losses incurred from this type of fraud.
Read more on APP fraud: Santander: Radical Action Needed to Tackle APP Fraud.
Payments Association director general, Tony Craddock, argued in an open letter published yesterday that government attempts to improve consumer protections may backfire.
Proposals to reimburse almost all APP fraud victims could actually create more fraud by encouraging malicious actors to pretend to be vulnerable.
“It may also encourage ‘first party fraud,’ where two parties wittingly arrange a ‘friendly scam’ to double their money,” he said.
He also argued that plans to share the cost of this compensation 50/50 between the sending bank/issuer and the receiving bank/issuer would result in account issuers becoming more cautious about opening or maintaining “marginal accounts” because of potential costs. This may make it harder for low income, elderly or other vulnerable members of society to open a bank account, Craddock said.
Finally, he argued that even though 80% of APP fraud originates on social media, these platforms are “rarely involved” in preventing fraud.
“Without involving social media giants, we will not stop most APP fraud at its source,” Craddock claimed. “The proposed Online Safety Bill is just one step towards securing the involvement of upstream actors, which is critical to preventing fraud at source. But it is not enough.”
According to the latest banking figures, APP losses amounted to £485m ($618m) last year, down 17% annually, with nearly 80% of cases starting online and 18% by phone.
The news comes as a new study from Juniper Research forecast that merchant losses from online payment fraud will exceed $362bn globally between 2023 and 2028, with losses of $91bn in 2028 alone.