UK Payments Industry Seeks One-Year Delay for New Fraud Refund Rules

Key Takeaway

• The UK payments industry seeks a one-year delay for new fraud refund rules, citing unprepared systems and high refund ceilings.
• PSR's David Geale insists on urgency, noting £460 million in APP fraud losses last year and ongoing industry support.
• Concerns include increased prudential risks, higher costs for real-time payments, and reduced fintech investment due to lower profitability.

Industry Requests Delay

The UK payments industry has requested a one-year delay in implementing new rules that mandate firms to reimburse scam victims. This request follows the resignation of the Payment Systems Regulator (PSR) head, Chris Hemsley, earlier this month. The Payments Association, representing over 200 members, expressed concerns that essential components of the reforms, such as the case management system, would not be ready by the October 7 deadline. The association has previously argued that the refund ceiling of £415,000 ($528,110) is too high, a stance supported by some government ministers.

Riccardo Tordera-Ricchi, director of policy and government relations at the Payments Association, emphasized the need for government intervention, stating, "Payment firms and fintech can’t absorb this alone, and the new government must intervene on this: if they want to kill a sector from which they expect a huge contribution for the growth agenda, they must say it clearly. It’s a political decision."

Regulatory Response

David Geale, who replaced Hemsley as PSR managing director, responded to the industry's concerns by stating that the rules were drafted after "more than two years of extensive consultation and industry engagement." He added, "We will continue to engage with and support industry, taking into account all feedback as we move forward and as industry works hard to implement the systems and processes needed for the new reimbursement requirements."

Despite the industry's request for a delay, Geale emphasized the urgency of addressing authorized push payment (APP) fraud, which led to £460 million in losses last year, according to UK Finance. "APP fraud continues to be a problem, and last year victims lost around £450m. We therefore need to act quickly," Geale said.

Financial Impact and Concerns

The Payments Association has warned that the new rules could significantly impact smaller firms' business models and increase the risk of criminals posing as victims to claim reimbursement. The association is also lobbying to lower the refund threshold to £30,000. Tordera-Ricchi highlighted the potential risks, stating, "The prudential risk and requirements to participate in the UK payments market will increase significantly. It will also result in an increase in cost and friction of real-time payments and a decrease in investment into the UK fintech market due to higher risks of failure and lower profitability."

UK Finance, a banking trade body, has criticized the PSR's rules for placing all liability on payment firms, noting that roughly 80% of APP fraud originates online. However, UK Finance is not asking for an extension to the October deadline.

Street Views

• Riccardo Tordera-Ricchi, Payments Association (Bearish on the new reimbursement rules):

  "Payment firms and fintech can’t absorb this alone, and the new government must intervene on this: if they want to kill a sector from which they expect a huge contribution for the growth agenda, they must say it clearly. It’s a political decision."

Management Quotes

• David Geale, PSR Managing Director:

  "We will continue to engage with and support industry, taking into account all feedback as we move forward and as industry works hard to implement the systems and processes needed for the new reimbursement requirements."