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Highlights:
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New rules effective from October 7, 2024, mandate compensation for victims of digital fraud involving UK banks and payment service providers.
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Victims can claim up to £85,000 in compensation, with payments expected within five days.
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In 2023, losses from authorized push payment (APP) scams reached £459.7 million, with a significant portion of victims receiving reimbursement.
As of October 7, 2024, a new regulatory framework introduced by the UK’s Payment Systems Regulator (PSR) has made compensation for victims of digital fraud mandatory. This regulation impacts major high street banks, including Lloyds Banking Group PLC {LSE:LLOY} and NatWest Group PLC, as well as building societies such as Nationwide and Coventry Building Society. Payment service providers, ranging from Wise to Stripe and eToro, are also covered under these new rules.
Victims of authorized push payment (APP) scams, where individuals are tricked into transferring money under false pretenses—often for goods that either do not exist or fail to arrive—can now receive compensation up to £85,000. Payments are designed to be processed quickly, with victims potentially receiving funds within five days.
Previously a voluntary process, the new rules signify a significant shift in the responsibility banks and payment entities hold regarding fraud compensation. The top compensation level has been adjusted from £415,000, following objections from the banking sector. Importantly, banks can recoup half of the compensated amount from the financial institution associated with the fraudster.
In 2023, authorized push payment fraud led to substantial financial losses totaling £459.7 million across 232,429 cases, as reported by UK Finance. Of these, £287.3 million—equating to 62% of total losses—was returned to victims. Analysis of fraud types revealed that over three-quarters (76%) of APP fraud cases originated online. While lower-value scams, such as purchase scams, constituted less than a third (30%) of total losses, larger impersonation frauds accounted for only 16% of cases but represented a staggering 43% of total losses.
This regulatory change aims to enhance consumer protection and bolster trust in digital financial transactions as the prevalence of online scams continues to rise.
