PSR may be the most-used acronym of the year

The whole market is watching in anticipation for later in 2024 when the new Payment Systems Regulator (PSR) rules come into place to see what the impact will be on the market. These world-first strong reimbursement rules mean significant new level of protection for victims against APP scams and represent a significant step in the fight against organised fraud, which reportedly makes up 40% of all UK crime. Improvements are expected across the board.

Changes to the Faster Payments system – via which the majority of APP fraud happens – will further strengthen Pay UK’s ability to tackle fraud and protect customers too. Potential liability will double overnight, incentivising all financial services firms and payment service providers to fortify their processes for both outgoing and incoming payments, or accept greater losses.

Expect this to lead to a rush of adoption of more sophisticated payment screening tools and rich data, as well as a concerted move towards intelligence sharing via consortium-based services.

Elsewhere, the latest PSD3 draft legislation includes an extension of reimbursement rights for consumers as well as provision for full reimbursement of damages in the event institutions fail to spot an IBAN mismatch in PSP spoofing fraud cases. In short, there’s a strong feeling is that we’re entering a new era where regulation ceases to be exclusively focussed on financial crime compliance and plants a foot firmly in the fraud camp, in 2024.

Digital trust will continue to rise up the agenda

Two-way digital trust between company and customer is broken. And one of the main culprits is a lack of consistency across the identity verification user experience. Security questions are only effective if you can be certain the person on the other end of the phone is genuine – and currently there’s nothing in place to make that assurance.

In 2024 we expect progress towards this trust equation being solved, as part of a wider concerted effort towards a digital trust eco-system that serves its purpose. Technologically of course this is already possible, but in the UK, we lack the necessary established digital identity framework to govern it. Whether we’ll move closer towards a common identity framework in the near future remains to be seen, although the UK Government consultation continues and other countries show it’s possible given the right political will and favourable wind.

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Perhaps the UK’s best short-term chance at success is a bank-led system – after all, they already know who we are, and all about payments networks. Expect plenty of debate about digital trust in 2024, as forward-looking firms seek ways to differentiate service experience through strong and inclusive digital trust. As it moves up the agenda of boards across the country, perhaps we’ll even start to see the emergence of ‘Chief Digital Trust Officer’ job adverts popping up everywhere.

Evolving fraud types will need to take priority

A major challenge in tackling fraud is that it constantly evolves. In 2024, new fraud typologies such as synthetic fraud will demand increasing levels of attention from lenders and financial institutions, particularly providers of low friction credit products such as Buy Now Pay Later loans, credit cards and sub- and near-prime loans. A synthetic identity is one that is patched together using a mix of stolen and fictitious personal information to create a new identity that does not relate to any living person. They are created to spoof identity checks and fraudulently obtain access to credit.

Being ostensibly ‘real’ from the point of view of the vendor, and not likely to appear on any fraud list, synthetic identities are also very hard to spot. Deloitte reports that it’s the fastest growing financial crime in the United States and could cost businesses $5bn in 2024. In the UK, it’s relatively less known, but no less of a threat and few institutions are effectively screening for it at onboarding right now. New analysis, due in the Spring will shed a light on the extent to which synthetic fraud has already permeated the UK financial services ecosystem – something that all lenders would do well to note.

The continuing cost of living crisis is also fuelling higher levels of first party fraud, where individuals adjust or misreport their own identity or circumstances for fraudulent gain. The latest LexisNexis Cybercrime Report analysis shows that first party fraud is already pervasive, accounting for around a third of all UK fraud reported by banks.

Similar to synthetic fraud, the challenge lies in the difficulty of detection, since on the face of it, it’s the trusted customer being presented. In 2024, expect volumes of this typology to continue rising, and a corresponding response on the part of UK firms to tackle this head on, through implementation of more powerful datasets that can pierce the veil and identify perpetrators.

Big tech will (at last) enter the fraud prevention fold

Emerging threats always create additional challenges for the ecosystem, typically due to the inevitable lag in innovation to respond to new threats. That said, one of the positives to come about in reaction to rising fraud levels in recent years has been new sectors entering the fold and contributing to the overall fraud prevention eco-system. This is a major step forward given that it’s no secret that a large proportion of fraud has its genesis in sectors far removed from banking, not least social media platforms.

National fraud strategies have been calling on big tech to come into the fold for years. In December last year the first steps towards that were made with the signing of an online fraud charter – a voluntary agreement between the UK Government and big tech companies to take positive action to reduce fraud happening on their platforms.

2024 is likely to see the fruits of these agreements take shape, hopefully starting with the establishment of processes for the safe and legal exchange of fraud intelligence between organisations in both the public and private sectors.

Nina Kerkez is financial crime and fraud industry expert and Senior Director, Market Planning at LexisNexis Risk Solutions in the UK