To the surprise of few observers, regulator Pay UK is rejecting calls by seven banks for a Faster Payments transaction fee to fund reimbursement of authorised push payment (APP) victims.
The sector’s failure to agree a consensus following an industry-wide consultation is nonetheless a bit of a PR own goal.
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But perhaps not a great shock.
For the record, the seven banks are Barclays, HSBC, Lloyds Banking Group, Metro Bank, Nationwide, RBS and Santander.
In other words, the incumbent banks. That is the established high street players plus the relatively new kid on the block, Metro.
Notice the lack of any of the neobanks and digital challengers among the seven.
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By GlobalDataThe suggestion is that the challenger banks have had something of a tantrum. Moreover, it has been suggested that smaller players think they may be unfairly penalised. Some commentators even dare to suggest that the bigger players could have an advantage because they are better at fighting fraud.
And so it is case of back to the drawing board.
H1 2019: cost to UK APP victims tops £200m
In the first half of the year, the cost to UK consumers of APP scams was over £200m.
And remember we are talking here of blameless victims.
In May, a temporary code was agreed by eight banks. They agreed to refund victims in no-blame situations where neither the bank nor the customer was at fault.
That temporary agreement is due to end in January.
Time is therefore of the essence and UK politicians are watching.
Pay UK sought industry wide responses regarding the proposal to introduce a Faster Payments levy. In turn, Pay UK received 41 responses from a range of different types of Payment Service Providers (PSPs).
The responses are split with 12 respondents in favour with 24 opposed and five stating no firm view. Quite how five firms could find themselves in the don’t know camp is a puzzle, but no matter.
Opponents say that the proposed rule change may result in inappropriate cross-subsidies. Moreover, they may impact on incentives to reduce fraud and cut fraud costs.
APP victims: political implications
The bank sector’s failure to agree a way forward will have political implications. In particular, the Treasury Select Committee will be vocal.
Now the Treasury Select Committee in the last Parliament did some sterling work. It produced many worthy and carefully considered reports. Its report, Economic Crime: Consumer View’, released in early November is not among them.
The report was, to be fair, unanimous and that always helps with select committee reports. But to take just one eye-catching recommendation: it calls for a 24-hour delay on a subset of Faster Payments transactions.
It would, the TSC argues, give consumers the chance to consider if they are being defrauded.
Faster Payments represents a UK finance sector success story. So it makes little sense to propose regulatory changes designed to slow down faster payments. Nor would such a change find favour with the majority of consumers.
All stakeholders seem to agree that there is the need for a solution that will give consumers peace of mind. Moreover, the agreement will need to meet the needs of different types of payment providers – incumbents and digital challengers.
APP victims: any solution must be sustainable
The solution will also require to be sustainable, with bank transfer scams already totalling just over £1m a day and rising.
There is however a window of opportunity for the banking sector to get its posterior in gear before Parliament resumes.
The TSC will not resume sitting until the New Year following the UK general election.
Blameless victims will need to be offered greater protection. Stating the obvious, the new Parliament, whichever party wins the election, will expect victims to be reimbursed.
In 2018, victims received back only an average of 20% on £354m stolen in APP scams. That kind of reimbursement rate is unsustainable.
The likely outcome is that banks will self-fund compensation funds for victims.
Take a bow TSB
As a result, they will need to ramp up their efforts to improve consumer education. It will also represent a renewed opportunity for the more astute and innovative security software outfits to plug their wares.
Lastly, take a bow TSB. It has ploughed a lone furrow among its peers. Back In April, TSB launched its ‘Fraud Refund Guarantee’. It was the first UK lender to refund its customers if they’ve been an unwitting victim of any type of fraud.
TSB is also among the most energetic lenders at community level, working with schools, hospitals, care homes and charities as part of a “Protect, Prevent, Pursue” approach.
It has gained much positive PR for its strategy. In the process, TSB has repaired a lot of the damage to its reputation arising from its IT shambles last year.
