The payments industry has expressed concerns regarding the UK government's proposal to mandate reimbursement for scam victims. The industry cited the designated maximum refund amount of USD 520,760 as disproportionate and potentially detrimental to smaller fintech companies.

Approximately 30 members of the Payments Association have communicated their reservations to the economic secretary to the Treasury in a recent letter challenging the impending fraud rules set to take effect in October. Advocates push for refund cap amid rising fraud and system concerns Advocates propose that the maximum refund should be capped at USD 37,975, aligning more closely with the average loss incurred by victims, as outlined in a forthcoming letter. Additionally, concerns have been raised regarding the readiness of the refund systems by the specified deadline.

A significant rise in authorised push payment fraud globally, wherein individuals are deceived into transferring funds to accounts controlled by criminals, has sparked discussions and legal actions regarding liability for associated costs. These fraudulent activities, predominantly initiated through social media platforms, resulted in nearly USD 632 million in losses in the UK in 2022, according to the Payment Systems Regulator (PSR), which is overseeing the implementation of the new regulations. Compensation rates have exhibited considerable variation among banks, with some committing to refund over 90% of victims while others offer only 10%.

Under the proposed rules, the financial burden of reimbursement would be shared between the sending and receiving institutions of the scam payments. However, companies are voicing apprehensions regarding the logistical challenges associated with implementing the mandatory refund system. The perceived risks to cohesive delivery and potential inconsistencies in consumer outcomes pose threats to future competition and innovation, particularly in sectors such as Open Banking and digital challenger banking.

Payments Association warns reforms may harm fintech competitiveness Representatives from the Payments Association emphasise that the proposed reforms could undermine the competitive position of challenger banks against traditional high street banks, potentially jeopardising the UK's status as a global fintech hub. Moreover, concerns have been raised by industry leaders regarding the disproportionate impact of the proposed regulations on smaller firms within the UK fintech community, especially when compared to approaches taken in the EU and elsewhere. While the European Commission has also proposed refund measures for victims, with specific conditions and additional responsibilities for communication platforms, stakeholders within the UK emphasise the need for a more proportionate approach, suggesting a cap closer to USD 107,595.

PSR defends refund cap The PSR defends its decision, stating that the upper reimbursement threshold was determined after extensive consultation and aligns with the maximum amount payable for consumer complaints referred to the Financial Ombudsman Service. The aim is to enhance protections for individuals and encourage firms to implement preventive measures against fraud. Finance executives have urged for more proactive measures to combat fraud at its source.

Some fintech companies have reported that a majority of UK scams originate from social media platforms, particularly Meta Platforms., with significant losses attributed to investment schemes. In response, the UK government has allocated USD 506 million to combat online fraud and proposed legislative changes to introduce delays in certain payments, allowing firms additional time to investigate potentially fraudulent transactions. .