UK payments watchdog says APP fraud refund rules are cutting losses

The UK’s Payment Systems Regulator said mandatory reimbursement for authorised push payment fraud is reducing losses and increasing compensation for victims, citing an independent review by Frontier Economics. The consultancy estimated the policy has cut in-scope APP fraud losses by £73mn a year and reduced the number of APP scams by nearly 35,000.

APP fraud occurs when a victim is tricked into authorising a payment to a criminal. Under the PSR’s reimbursement regime, payment service providers must repay qualifying victims, shifting more of the financial cost of scams onto firms and giving them a stronger incentive to detect and stop fraudulent transfers before money leaves an account.

Frontier Economics found that reimbursement rates across all APP fraud claims rose from 54% to 65%. For claims covered by the policy, firms are now reimbursing 97%, according to the review.

The PSR said the largest gains were recorded at firms that had the highest levels of APP fraud before the rules took effect. The regulator said that pattern indicated the incentives created by the policy were producing the intended changes in firms’ behaviour.

Frontier Economics estimated the policy is generating a short-term net benefit of £17mn to £29mn after including higher costs for payment service providers. The consultancy described that estimate as conservative, according to the PSR.

David Geale, managing director of the Payment Systems Regulator, said: “The evidence is clear, APP reimbursement is working. Payment fraud losses are down, more victims are being reimbursed, and firms are investing in prevention.”

Geale said the regulator had not seen evidence of market exits or reckless consumer conduct, two outcomes that had been raised as possible consequences of the reimbursement framework.

Fraud losses remain elevated

The PSR’s assessment comes against a broader backdrop of high fraud losses in the UK. Recent figures from Innovate Finance showed criminals stole £1.28bn through fraud in the UK last year, a 4% increase on 2024.

APP fraud losses rose 19% to £576.4mn, according to those figures. The number of recorded APP fraud cases increased 7% to 248,070. Personal losses totalled £500.8mn, while business losses reached £75.6mn.

Geale said the regulator was not satisfied with the current position. “There is more to be done to ensure consistency in how consumers are treated, along with a step-change in the approach taken by tech firms and telcos to keep up with, if not outpace, those criminals exploiting their systems,” he said.

The PSR said implementation of the reimbursement policy has been uneven, meaning consumer outcomes can still differ depending on their bank. The regulator plans to address those differences through a roadmap setting out further action.

A consultation due before the end of the year will include proposals intended to make application of the policy more consistent. The PSR said it would require firms to improve where it has identified poor compliance.

The regulator also said it will publish new data at the end of the year on the platforms fraudsters use to target victims. It said the information will support a coordinated response aimed at tackling fraud closer to its origin.

This story draws on original reporting from Finextra Research.