UK Payment and Fintech Firms to Benefit from New APP Fraud Compensation Cap

UK payment and fintech firms will welcome the proposal by the Payment System Regulator (PSR) to reduce the cap on compensation for authorised push payment (APP) fraud to £85,000.

APP’s rely on the payer actively sending or ‘pushing’ the money to the payee. An example of a push payment is a bank transfer, where the payer controls the amount being sent and the payment destination. Push payments are generally used for making high value, one-off transfers. The PSR identifies two types of APP scams, which are either*:

1. ‘malicious payee’, for example, tricking someone into purchasing goods which don’t exist or are never received; or

2. ‘malicious redirection’, for example a fraudster impersonating bank staff to get someone to transfer funds out of their bank account and into that of a fraudster.

The revised cap is scheduled to come into effect with the new mandatory APP reimbursement scheme on 7 October 2024, which will require payment firms, such as banks and building societies, to reimburse losses within five working days of the victim’s report of APP fraud.

To indicate the scale of APP fraud in the UK, UK Finance has produced figures which show that around £500M was lost to this kind of fraud in 2023.

The maximum compensation payable to an individual by payment providers such as banks and building societies was originally capped at £415,000 when the scheme was introduced in December 2023. However, the cap is being revised following a consultation with the finance and payment sector and is to be limited to £85,000. It was feared that setting the cap at the higher level would impede the ability of smaller fintech companies to compete with larger banks, stifling innovation. The reduced cap of £85,000 is now in line with the Financial Services Compensation Scheme (FSCS) payment limit.

In addition to the benefit to smaller fintech companies, banks, building societies and other payment providers may take comfort from the proposed reduction to the compensation cap, as it will reduce their possible losses resulting from APP fraud compensation payments and from fraudulent claims under the scheme.

Furthermore, the revision to the cap means that the vast majority of victims of APP fraud will still benefit fully under the new scheme, as figures from UK Finance suggest that in 2023 only around 0.16% of APP fraud cases (411 out of 250,000) cost the victims more than £85,000.

The PSR are to keep the cap under review and expect that payment providers will maintain a robust procedure for preventing APP fraud in the first instance and look to improve that procedure where able to do so.

If you have any queries or concerns regarding APP fraud or the compensation payable to victims as a result of APP fraud, please contact Daniel Adcock-Kirsh in Kuits’ Financial Services Dispute Resolution team.

[1] https://www.psr.org.uk/our-work/app-scams/