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The payments industry is pushing back against the UK’s plans to force firms to reimburse scam victims, saying the maximum refund of £415,000 ($520,760) is “simply not proportionate” and could damage smaller fintechs. About 30 members of the Payments Association have signed a letter to the economic secretary to the Treasury, Bim Afolami, in a late challenge to the fraud rules that are due to come into effect in October. They say the maximum refund should be set at £30,000, which is closer to the average loss, according to a draft of the letter due to be sent on Wednesday. They also warn the refund systems might not be ready in time. 

A global surge in authorised push payment fraud, which tricks customers into moving their money to accounts controlled by criminals, has stoked debate and even lawsuits over who is responsible for the cost. These scams mostly lure victims over social media and caused almost £500 million in UK losses in 2022, according to the Payment Systems Regulator, which is implementing the new rules. 

Compensation rates have varied widely among banks, with some agreeing to refund more than 90% of victims and others just 10%, the PSR has found. The new rules would split the cost between the institutions sending and receiving the scam payment. 

Companies, though, are warning about the work involved in the mandatory refund system and “there are significant risks to its cohesive delivery, which in turn risks poor and inconsistent consumer outcomes,” according to the draft letter seen by Bloomberg. “This threatens future competition and innovation in areas like open banking and digital challenger banking.” 

Smaller providers including Monzo, Starling and Metro Bank Holdings Plc are among firms with the greatest proportion of APP scams, with over 100 frauds per million transfers sent, according to PSR data. 

Riccardo Tordera-Ricchi, head of policy and government relations at the Payments Association, said the reforms could undermine challengers’ ability to compete with high street banks. “We do not want victims to fall for fraud, but the measures put in place have gone out of control. We can’t continue to say we’re a global centre for fintech if we are dropping the fintech centre,” he said. 

Links: https://www.bloomberg.com/news/articles/2024-05-15/uk-payments-firms-urge-fraud-rules-rethink