Why your APP scam strategy must not be swayed by the reimbursement limit update

With less than one month until new APP scam reimbursement rules come into force, the PSR has confirmed a new reimbursement limit. Although the implementation date of October 7^th is unchanged, the mandatory reimbursement cap is now £85,000.

The cap was reduced from £415,000 to £85,000 following additional analysis of the scam claims landscape and industry feedback. But how should PSPs respond – if at all?

• Which APP scam claims are affected by new rules? ⇒
• The impact of limit changes: A costly lack of clarity ⇒
• How should banks respond to reimbursement rule changes? ⇒
• Focus on refining your ongoing APP fraud response ⇒

Which APP scam claims are affected by new rules?

On the surface, the impact of the rule change appears minimal. This is because at present, only 0.28% of APP scam claims exceed £85,000. Therefore, consumer protections remain robust, as do incentives for organisations to implement APP scam-specific fraud protections.

However, there is nuance to the 0.28% figure, which may influence how PSPs approach to the confirmed reimbursement limit change.

Despite being low in volume, larger claims make up a considerable portion of claims value – 25.21% to be precise, equating to £115,890,370. As such, PSPs can be confident that victims who face losses exceeding £85,000 will be equally steadfast in pursuing claims – whether the mandatory limit is £415,000 or £85,000.

It is worthwhile noting that the Financial Ombudsman has expressed willingness to take on potentially out-of-scope claims, should losses not exceed £430,000. Similarly, claims of any value proven to be a result of gross negligence may still be paid out.

The impact of limit changes: A costly lack of clarity.

The lower limit does not change the APP fraud landscape. Nor does it lessen the banking industry’s determination to protect consumers and clamp down on scam transactions. But what it will do is reduce clarity around how claims are dealt with.

With the mandatory reimbursement reduced, PSPs face a new scenario whereby strong penalties and payout mechanisms remain in place, but a clear pathway for dealing with 25% of scam claims value does not.

Because despite being low in volume, these high value claims will inevitably be accompanied by complex, protracted and potentially costly legal proceedings and investigations.

Therefore, there is a strong case for dealing with out-of-scope claims in a similar way as those within the limit. Utilising the same processes, technologies and guidelines that have already been invested in.

How should banks respond to reimbursement limit rule changes?

Regardless of reimbursement limits, banks are advised to continue with their planned APP scam measures whereby larger claims are factored in.

Chris Lewis, Synectics’ Head of Solutions explains that “many of these measures emphasise private-private intelligence sharing, risk-scoring and real-time screening, with a focus on clarity and speed. Therefore, they present a strong deterrent to organised financial crime, which all PSPs are equally committed to driving out of banking systems”.

“Importantly, in the context of reimbursement, planned APP scam measures help banks to address all claims at the earliest opportunity, with minimal disruption and additional expense” - Chris Lewis, Head of Solutions 

This is true whether the case totals a few thousand pounds and involves minimal transactions or PSPs. And, for those larger, complex losses – totalling 25% of claims value – those will surely be pursued by claimants regardless of the mandatory scope.

Focus on refining your ongoing APP fraud response.

In summary, exposure to APP fraud is as high as ever, for PSPs and consumers.

Although changes to the mandatory reimbursement limit may warrant additional tactical considerations, the planned response pre-October 7^th remains fair, effective and fit-for-purpose.

Therefore, focus now shifts to refining ongoing APP fraud strategies. For help in this area, contact a Synectics’ Fraud Strategy Consultant here.