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The UK is taking a dangerous gamble in its latest measures to combat authorised push payment (APP) fraud, the CEO of Australia’s largest payments association has said.

Andy White of the Australian Payments Network (AusPayNet), a self-regulatory body, said the UK’s mandatory reimbursement model creates a new form of “moral hazard” for the country’s payments industry.

“It guarantees revenue to the fraudsters,” he said at the Pay360 event in London last week. “And if you really want to get controversial, we even have this new terminology of a ‘reimbursement scam’.

“That’s when a customer deliberately says they have been scammed in order to be reimbursed. That's not a great behaviour to encourage, and it creates a lot of risk.”

From October 7, 2024, UK banks and payment firms will be liable to reimburse customers who fall victim to APP fraud up to £415,000, the Payment Systems Regulator (PSR)  in June last year.

The cost of each reimbursement must be split 50:50 between the sending bank or payment firm and the receiving bank or payment firm.

Chris Hemsley, managing director of the PSR, has taken the view that mandatory reimbursement is the best form of protection for consumers.

“The action we’re taking significantly increases the level of protection for people and puts the UK at the forefront of APP fraud protections globally,” he  in December. “Our approach incentivises banks and other payment firms to prevent APP fraud from happening in the first place while ensuring victims are protected in a consistent way.”

But White said at Pay360 that it is naive to believe that regulators can win the fight against scams simply by imposing financial penalties on banks for failing to stop them.

“Scams tend to be seen as a banking or a payments problem,” he said, but this is not necessarily accurate. “All scams involve a payment, but not all scams are payment scams.

“Most scams involve social engineering at a much earlier stage in their life-cycle, so the way we've tried to think about this in Australia is that every entity in that life-cycle has a set of obligations they need to meet.

“And if they don’t meet those obligations, there might be penalties associated with that.”

Stopping scams ‘at source’

Rather than reimbursement, Australian regulators are instead focusing their efforts on ensuring high standards of due diligence against scams across a range of sectors.

In November last year, Australia’s Treasury opened a new  on a Mandatory Industry Code, which would introduce sector-specific obligations to identify and prevent scams.

As currently proposed, these obligations would apply to banks but also to telcos and “digital communication platforms”, including social media platforms. AusPayNet has argued for the measures to go further, bringing in payments service providers (PSPs) and internet service providers (ISPs) as well.

“We love the idea,” White said last week. “But we would like to see ISPs in there as well, and that’s really to try and deal with malicious websites and email in the same way we deal with SMS by having telcos in there.

“We would also like to see PSPs in there, because we worry that if it's just banks, then scam payments will just shift to PSPs.”

The idea is to stop scams “at source”, he said, rather than settling scores only after a customer has been scammed.

Australia’s results

In an on-stage conversation at Pay360 with Tony Craddock, director general of the UK’s Payments Association, White noted that Australia is already seeing results from its various anti-scam initiatives, without a focus on reimbursement.

In the six months since the creation of the National Anti-Scam Centre in July 2023, total losses to scams fell by 29 percent compared with the same period a year earlier, he said. Losses to investment scams specifically were down 37 percent over the same period.

Those numbers have come as a relief to Anthony Albanese’s government, 91����ԭ�� reported last month, after losses to scams hit a new record of A$3.1bn in 2022.

White described the progress on investment scams, which made up about half of all scam losses in 2022, as “amazing”.

Craddock agreed: “Who in the room wouldn’t want to see a 37 percent reduction in scams?” he said at Pay360. “Goodness me.”