A proposal to set up a fund to compensate victims of bank scams has been rejected by payments group Pay.UK.
Pay UK says that there has been no industry consensus to finance a central fund. A voluntary code requiring banks to reimburse affected customers is funded to the end of December so from January it will be up to individual banks to decide on reimbursements.
It is thought that more than £1 million a day is being lost to scams in which people are duped into authorising a payment to an account controlled by a criminal.
Lloyds, Barclays, Royal Bank of Scotland, HSBC, Santander, Nationwide, Metro Bank and Starling signed up to the fund in May but several smaller banks have objected to the plan saying its fraud rates were five times lower than the industry average.
Paul Horlock, Pay.UK’s Chief Executive, said “We believe that innocent victims need to be reimbursed in a “no-blame” scenario, as does most of the industry. We launched our call for information to understand from the industry how best this might be achieved.”
The evidence from the call for information reveals a lack of consensus among payment providers on how to fund “no-blame” reimbursement. It also points to a number of unresolvable issues with the proposal, including whether it would be effective in driving investment in fraud prevention, the impact it would have on competition, and whether it could be effectively implemented or enforced.
Despite the proposal not receiving widespread support, there was overwhelming agreement among payment providers that customers should be reimbursed in a “no-blame” scenario. Pay.UK is now calling on industry and regulators to work together to find a solution that gives customers peace of mind and meets the needs of different types of payment providers.
Horlock continued “The evidence we’ve gathered suggests that giving payment providers more flexibility and control – for example, through a self-funding model – in the way they fund reimbursement is more likely to lead to better and consistent outcomes for consumers. It is critical that the whole industry plays its part. We’ve already seen examples of payment providers taking significant steps to protect their customers independently, and we believe a flexible alternative will create the conditions for all parties to tailor their approach to funding and offer consumers a consistent experience.”
The payments industry has worked with consumer representatives to develop the voluntary APP CRM Code, which sets customer protection standards for signatories, including defining when victims should be reimbursed by their payment provider. This is a significant achievement, which is already helping to protect customers.
To give customers further reassurance, Pay.UK is inviting support from industry and regulators to work together to explore the feasibility of developing an “APP Guarantee” in the Faster Payments Scheme. This would formalise payment providers’ commitment to protect their customers on an enduring basis in the event of a “no-blame” APP scam.
Pay.UK has also welcomed the Treasury Committee’s recommendation to introduce legislation to underpin the Code and protect the interests of victims of fraud.
Horlock concluded “Consumers must remain the central focus as we move forward. We are keen to see government and regulators help deliver a consistent solution for them across all payment systems. Without regulatory intervention, any further work – including the proposed Guarantee – would be dependent on consensus across the industry. In the meantime, the power to compensate individual customers remains in the hands of payment providers.”