POV: Combating APP Fraud: A Paradigm Shift in Security
A POV from Peter Cornforth, Answer Pay.
Overview
The Payment Systems Regulator has introduced new policies to combat the £500M annual fraud problem, resulting in the need for banks and payment providers to re-evaluate their security approaches. Failure to adapt will result in increased costs or customer attrition due to the mandatory publication of claims paid. TSB stands out as a leader, boasting a remarkable 98% of claims paid compared to the industry’s average of just 47%.
Empowering Users, Strengthening Security
Recognising that users are often the weakest link in security, it is essential to address their vulnerability. Presently, consumers bear liability for fraud, with banks offering discretionary reimbursements. However, security experts agree that expecting consumers to discern legitimate payment requests from fraudulent ones is unrealistic. With frictionless payments prevalent, relying on users to verify requests via phone calls is impractical. Consequently, despite facing significant financial losses, consumers struggle to protect themselves against persistent levels of APP fraud.
A prevalent scam method entails fraudsters orchestrating 80% of APP fraud through social media, SMS, and email—channels notorious for their lack of security. For instance, impersonating trusted brands, fraudsters send texts to thousands, or even millions, of consumers, hoping for a small percentage to react and click on payment links. Currently, banks rely on customers to validate the authenticity of such messages, but this approach is proving ineffective.
Taking Control: A Bank’s Opportunity
The impending shift in liability from consumers to banks signals a crucial change. Learning from successful implementations of Open Banking, regulators across industries are embracing Smart Data/Open Data initiatives, enabling consumers to authorise trusted third parties to manage their data. What if the bank itself became that trusted third party? Banks can directly integrate with energy companies, water companies, telcos, and other suppliers, receiving invoices and payment requests directly. By pre-validating the payee’s identity, fraud can be rooted out at its source. Consumers can then easily manage consent to pay within their banking app, while non-bank validated requests receive heightened scrutiny, dissuading fraudsters.
Ready Today: Answer Pay’s Solution
The solution to APP fraud is not a distant future prospect; it is available today. Answer Pay has already integrated directly with British Gas and is rapidly expanding its partnerships. APP fraud no longer needs to plague consumers or banks—we stand ready and able to combat it together.
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