In response to increasing pressure from the government and industry, the UK’s Payment Systems Regulator (PSR) is set to reduce the reimbursement limit for banks offering compensation to victims of authorized push payment (APP) fraud from £415,000 to £85,000.
The regulator’s decision has been influenced by concerns that the previous reimbursement level could jeopardize the viability of many smaller fintech companies. This new threshold aligns the maximum sum protected with the financial services compensation scheme, which safeguards depositors if a bank fails.
The PSR has initiated a consultation regarding the adjusted limit, asserting that the proposed cap will still cover over 99% of claims by volume. David Geale, the PSR’s managing director, stated: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach. As a result, we are now consulting on a limit that still covers the vast majority of authorized push payment scams and strikes the right balance. Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivized to improve anti-fraud protections, and we will maintain effective market competition and innovation.”
Last month, the PSR noted a significant disparity among UK banks in terms of the refunds provided for payments fraud. While some large banks like Nationwide and TSB refunded over 95% of lost funds last year, digital banks such as Monzo, Danske Bank, and AIB fully refunded customers in less than 10% of reported cases.
This revision comes as reports of fraud and scam cases to the UK’s Financial Ombudsman Service reached record levels in the second quarter, with APP fraud accounting for more than half of those cases. Between April and June 2024, consumers lodged 8,734 complaints regarding fraud and scams, marking a 43% increase compared to the previous year.
Rocio Concha, director of policy and advocacy at Which?, expressed her concerns: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect, and that this move follows months of lobbying from firms that refuse to take fraud seriously. Slashing the reimbursement limit risks exposing victims of high-value scams to severe financial and emotional harm and significantly reduces financial incentives for payments firms to implement effective fraud security measures. This makes it more likely that scammers will continue to thrive on certain payment platforms.”
Conversely, fintech companies have welcomed the news. Tiago Veiga, CEO of Aurum Solutions, commented: “It’s a huge relief that the PSR has come to its senses and lowered the maximum payout. While well-intentioned, such a high refund cap would have severely hindered the competitive stance of smaller fintechs against larger banks, ultimately stifling innovation. Given that no other country has such stringent reimbursement measures, this could have led to a contraction of our fintech sector and driven firms out of the UK.”
Innovate Finance also appreciated the decision but urged further reviews of the new regulations. CEO Janine Hirt stated: “We remain concerned that the PSR proposes reimbursement for cases deemed gross negligence by British courts—such as ignoring repeated warnings from their bank or misrepresenting a payment. Today’s review demonstrates that the regulator has heeded our calls regarding the high maximum reimbursement adversely affecting competition. We now need to see the same commitment from the PSR to review other aspects of the regime to prevent unintended consequences.”