The UK’s Payment Systems Regulator (PSR) has announced a significant reduction in the maximum fraud reimbursement limit for authorised push payment (APP) scams, lowering it from £415,000 to £85,000 just weeks before new rules take effect in October.
According to the PSR, the new cap still covers 99 per cent of APP scam claims, based on its review of more than 250,000 cases, only 18 of which involved losses exceeding £415,000.
“We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach,” said David Geale, managing director at the PSR. The regulator defended the reduced threshold as maintaining strong consumer protections while addressing concerns from financial firms.
“Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation,” added Geale.
Surging complaints
However, the decision comes amid record-high fraud complaints – the Financial Ombudsman Service reported 8,734 complaints in the first quarter of the year, with more than half related to APP fraud.
Rocio Concha, director of policy and advocacy at UK consumer body Which?, sharply criticised the change, calling it “outrageous”.
“It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously,” said Concha.
“Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures.
“This makes it more likely that scammers will continue to thrive on some payment platforms.”
‘Positive news’
In contrast, industry body Innovate Finance welcomed the PSR’s review with CEO Janine Hirt describing it as “positive news” for consumers and the UK fintech sector.
CEO Janine Hirt commented: “As we at Innovate Finance have consistently lobbied for, a maximum reimbursement of £85,000 will cover in full 99.7 per cent of all payments fraud and will provide the same level of protection as bank deposits, whilst reducing payment firms’ exposure to the risk of fraudsters themselves exploiting the new rules.”
However, Hirt outlined concerns that the PSR is still proposing that many cases which British courts have judged as gross negligence – such as ignoring repeated warnings from their bank or lying about a payment – would still be eligible for reimbursement.
“Today’s review by the regulator demonstrates that they have listened to our repeated warnings about a high maximum reimbursement negatively impacting competition in the sector,” she said. “We now need to see the same commitment from the PSR to review other details of the regime in order to guard against unintended consequences.
“We and our members vigorously support action to combat fraud and have consistently called for a more ambitious and holistic strategy to stop scams. With a better designed and more effective reimbursement scheme, we can start to focus attention and effort on reducing the crime itself: with industry, regulators and law enforcement working together to identify and stop scammers before the fraud occurs, therefore protecting consumers from suffering the painful experience of being defrauded in the first place.”
‘Excellent first steps’
Riccardo Tordera, director of policy and government relations at The Payments Association, viewed the reduction as a welcome move, but suggested an even lower threshold of £30,000 to better balance the financial sector’s needs.
He highlighted that most APP fraud cases involve significantly smaller amounts, with businesses averaging £12,000 in losses and individuals less than £2,000.
“We never contested the principle of reimbursement, and we never will. Consumer protection is at the centre of our proposal. We merely asked for the upper threshold of £415,000 to be examined as this amount would devastate the payments sector, which contributes a great deal to the UK economy.
“As well as that, for such a high sum to be immediately reimbursed would be very tempting for fraudsters. Unintended consequences such as these need to be interrogated before such changes to regulation can be introduced.
“With this in mind we are pleased the PSR has considered the wider societal implications of these changes and we hope to continue cooperating. The proposed reduction to £85,000 is an excellent first step, but £30,000 would be more appropriate. This would cover more than 95 per cent of APP fraud cases.
“The average scam is £12,000 for businesses and less than £2,000 for individuals. For the remaining five per cent, a police report should be mandatory before it moves any further. This would help prevent fraud in the first place, which should be our goal.”
‘Good move’
Supporting the PSR’s decision, Jessica Cath, head of financial crime at Thistle Initiatives, a compliance consultancy for financial services, argued that the £415,000 cap would have been particularly challenging for smaller firms.
“Dropping the mandated limit that banks will be expected to pay victims of APP fraud is a good move by the PSR. The original figure of £415,000 would have posed serious challenges, especially for small payment firms. £85,000 is less damaging, but still large enough to ensure that businesses take the new regulation seriously.
She also touched on the importance of payment firms preparing robust fraud detection systems ahead of the October deadline.
“I think it’s very unlikely that the compliance date of 7 October will be pushed back when the PSR shares its final guidance at the end of this month. This means, if they haven’t yet done so, businesses need to start implementing fit for purpose fraud frameworks as soon as possible.”
‘Concerns acknowledged’
Dima Kats, CEO and founder of Clear Junction, a global payments provider, expressed support for the ongoing dialogue between the industry and regulators, noting the importance of balancing consumer protection with industry innovation.
“The concerns raised across the industry about the potential impact of the new regime have clearly been acknowledged,” said Kats.
While the new threshold of £85,000 remains substantial, Kats believes it strikes a fairer balance between safeguarding consumers and fostering competitiveness in the financial sector. “This move allows for continued innovation while maintaining an effective regulatory framework. Open dialogue like this is a hallmark of the UK financial services industry, fostering a more responsive and adaptable business environment.”
‘Supporting growth’
Alex Reddish, MD of Tribe Payments, a digital payments and infrastructure orchestrator, echoed these sentiments, noting the broader implications for the UK fintech sector.
“By reducing the APP fraud reimbursement cap, the PSR is not only enhancing security but also supporting the financial ecosystem’s growth,” Reddish commented.
He highlighted the £5billion fraud cost to the industry in 2023, pointing out the importance of balancing fraud prevention with nurturing the fintech sector. “This move demonstrates a commitment to both innovation and security, ensuring the UK remains a global leader in financial technology while actively working to mitigate fraud’s impact.”
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