Pay.UK on Striking the Balance Between Fast and Friction in Stopping UK Fraud Epidemic

The U.K. has been experiencing a widespread payments fraud epidemic in recent years.

Authorized push payment (APP) fraud, for example, increased 40% between 2020 and 2021 and amounted to £583 million ($706 million) in losses in 2021, nearly half of the £1.3 billion ($1.57 billion) lost to overall fraud incidents that year, per UK Finance.

According to Kate Frankish, chief business development officer and anti-fraud lead at Pay.UK, that type of scam in which criminals trick a person or business into sending money into a fraudsters’ account can be particularly difficult to identify, especially for financial institutions (FIs).

“From a bank’s perspective, it looks like a real payment, because the customer authorized it using all of their credentials. But it’s either going to an account that doesn’t belong to them or it’s going to a real person who has been scammed out of the money,” she told PYMNTS in an interview.

For Pay.UK, which is the recognized standards body for the U.K.’s national retail payment schemes, — the Bacs Payment System, the Faster Payment System and the Image Clearing System for checks — Frankish said tackling this epidemic is at the heart of its work to ensure these systems are safe and secure for users.

This includes looking at how technology, such as using artificial intelligence (AI) and machine learning, can be used to assess patterns and help FIs with real-time risk scores which they can then leverage to make better decisions when helping their customers.

The payments system operator has also been working with the U.K. Payment Systems Regulator (PSR) on a framework that will require banks and other payment service providers (PSPs) to refund victims of APP fraud, an additional layer which Frankish said is necessary to complement fraud prevention measures already in place.

As she pointed out, “Fundamentally the whole industry; the regulator, the bank [and Pay.UK] want less frauds to happen,” and together, the goal is to “make it as good a journey as you can for a customer who’s gone through what can be considered a horrendous experience.”

The Cost of Love

Fraudsters tend to take advantage of holidays, events and special occasions to swindle money out of unsuspecting targets.

In fact, according to data from the U.K.’s Action Fraud, Brits are conned out of at least £95 million ($115 million) each year from “romance” scams, a common type of APP fraud which has surged in recent years alongside the increase in online dating apps.

And as Valentine’s Day is celebrated around the world Tuesday (Feb. 14), Frankish said fraudsters who go to great lengths to build trust with their targets will be making their move and asking for money, often resorting to life-threatening scenarios to put pressure on their victims to transfer the funds quickly.

She pointed to statistics that show that men and women between ages of 65 and 74 make up 75% of these romance scams, which is unsurprising given that this group is often made up of single people in search of companionship and as a result, are more vulnerable to these attacks.

“It’s a kind of double whammy for the person who’s had a fraud perpetrated against them because they think they’re in a [loving] relationship whereas the person is just trying to get to a point where they feel comfortable enough to coerce them,” Frankish noted, adding that the average romance scam fraud is about £12,000 (about $14,500).

‘Good’ Friction Helps

Among the tools and services Pay.UK offers to help fight fraud and reduce misdirected payments are request to pay and confirmation of payee (CoP).

The latter, which per Frankish covers about 92% of payment transactions in the U.K. today, enables a sender to check if the name of the recipient account matches the name and account details of the person or business they intend to send money to before a transfer is made.

And although the name-checking service doesn’t stop the payor from transferring the funds if they choose to, CoP gives them a warning if the accounts don’t match — a strategy which Frankish said has played a key part in preventing about 10% of APP fraud incidents.

Read more: PSR Expands CoP Requirement to 400 PSPs

But one might argue that services like CoP aimed at strengthening user authentication can also be a source of friction along the user journey, introducing additional steps that can end up chipping away at the overall experience.

Frankish acknowledged that while it’s a tricky balance, “good friction” in payments is beneficial in curbing fraud, especially as the move from faster to instant payments is making fraudulent payments increasingly hard to reverse.

“The U.K. Faster Payments scheme is there for a good reason. It helps the U.K. economy move quickly. But while you don’t want to slow down payments, you want the right balance so that consumers and businesses are protected as well,” she said.

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.