older woman looking at utility bills

Fraud, a persistent problem

APP fraud remains a significant challenge for the UK payments industry, with consumers feeling a lack of tangible change since the onset of fake Post Office/HMRC messages during the pandemic. Despite efforts to curb fraud, annual figures persist at alarmingly high levels, showcasing the relentless creativity of fraudsters in their campaigns.

Industry-level changes require time for implementation and acceptance. The recent mandate by the Payment Systems Regulator, revealing fraud data for payment providers, aims to foster accountability. By publicly disclosing the proportion of fraud transactions and repayments to customers, the hope is to enhance claim payback rates and spur banks to address the issue seriously.

More changes are on the horizon, particularly in distributing liability for fraud. Currently borne solely by consumers and their banks, future models propose sharing this burden with receiving banks. This shift recognizes that receiving banks and their customers are beneficiaries of fraud, prompting a necessary reevaluation of the current scenario.

Close fraud; open banking

To tackle the authorised push payment (APP) fraud issue, it’s time to revisit the successes of Open Banking. Although a massive undertaking, Open Banking introduced crucial security measures, including a robust identity framework. Applying these principles to the APP fraud problem can be instrumental in creating a more secure environment.

One prevalent form of APP fraud involves impersonating well-known brands, exploiting the established relationships consumers have with them. For instance, British Gas, relied upon by over a quarter of UK households, becomes a prime target. To combat this, envision British Gas as an Account Servicing Payment Service Provider (ASPSP) in Open Banking language. They could offer an API allowing accredited third parties to access consumer data securely. Trusted third parties (TPPs) like retail banks or personal finance manager apps could then aggregate payment requests, reducing fraud liability.

Making bill payment online

This approach not only ensures secure bill payment requests but also presents additional benefits. In regulated sectors like energy, providing consumers with diverse payment options can be expensive. APIs for consumer-permissioned TPPs offer a cost-effective digital solution, fostering choice and reducing expenses for energy companies.

The future is here

The realisation of this vision is within reach through Open Data, the evolution of Open Banking and Open Finance. Often referred to as Smart Data, these programs need accelerated implementation with regulator support. While regulatory frameworks are essential, success stories like Plaid in the US and Sofort in Germany demonstrate that proactive measures by banks and payment service providers can make a significant impact even without strict regulatory backing.

With substantial financial stakes involved, waiting for regulators is not the only option. Banks and payment service providers can take a proactive role in limiting fraud liability. A live connection to British Gas showcases how validated bills and invoices can be provided securely, bypassing traditional, less secure communication channels like SMS and email.

In conclusion, a collaborative effort, leveraging the principles of Open Banking, Smart Data, and proactive industry initiatives, can revolutionise the landscape of APP fraud in the UK payments industry. It’s time for a paradigm shift that prioritises security, accountability, and consumer trust.

If you’re a stakeholder in the financial industry – an open banking provider, a retail bank, or a regulator – and are eager to fortify your defences against APP fraud, we invite you to connect with Answer Pay. Our expertise and innovative solutions stand ready to empower your organisation in navigating the evolving landscape of digital payments securely. Let’s work together to transform challenges into opportunities. Reach out to us today!