PSR lowers APP reimbursement limit to £85,000

editorial

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The regulator was forced to lower the level of refunds amid concerns that the new rules could drive many smaller fintechs out of business. A lower threshold of £85,000 would bring the maximum protection amount in line with the Financial Services Compensation Scheme, which protects depositors if a bank fails.

The PSR has launched a consultation on the new limit. The regulator says the proposed new cap will still cover over 99% of claims (by volume).

David Geale, chief executive of the PSR, commented: “We have listened to concerns about the reimbursement cap and are committed to gathering further evidence to support our approach. For this reason, we are currently advising on a limit that still covers the vast majority of authorized push payment scams and strikes the right balance. Under our proposals, UK consumers will continue to receive world-leading protection, payment providers will continue to have strong incentives to improve fraud protection, and we will ensure effective market competition and innovation.”

The PSR said last month that there was wide variation between UK banks in the level of payment fraud cases they reimburse to their customers.

Some major banks such as Nationwide and TSB fully refunded more than 95% of lost funds last year, while others such as digital bank Monzo, Danske Bank and AIB issued full refunds to their customers in less than 10% of reported cases.

The decline in PSR comes as fraud and fraud cases reported to the UK Financial Ombudsman Service reached a record high in the second quarter of the year, with APP fraud accounting for more than half. Between April and June 2024, consumers filed 8,734 complaints about fraud and scams – a 43% increase compared to the same period last year.

In conversation with the FT, Rocio Concha, Which? The Director of Policy and Advocacy said: “It is outrageous that the payments regulator is weakening key fraud protections weeks before they come into effect and that this move follows months of lobbying by companies who refuse to take fraud seriously.”

“Cutting the reimbursement cap risks causing devastating financial and emotional harm to victims of top-dollar scams, and also significantly reduces the crucial financial incentives for payment companies to adopt effective fraud protection measures.” This makes fraudsters more likely to Some payment platforms continue to be successful.”

In contrast, fintechs welcomed the news. Tiago Veiga, CEO of Aurum Solutions, says: “It is a great relief that the PSR has come to its senses and reduced the maximum payout. Such a high reimbursement cap, while well-intentioned, would have significantly impaired the ability of smaller fintechs to compete with larger banks and, in the long run, stifled innovation. With no other country having such stringent reimbursement measures, our fintech sector risks shrinking and businesses being driven out of the UK.”

Innovate Finance also welcomed the U-turn, but called for further reviews of the rules.

CEO Janine Hirt explains: “We remain concerned that the PSR still suggests that many cases which UK courts have found to be gross negligence – such as ignoring repeated warnings from their bank or lying about a payment – ​​are still ongoing will be eligible for a refund.” The regulator’s review shows that it has listened to our repeated warnings that the high maximum refund has a negative impact on competition in the industry. We now need to see the same commitment from the PSR to review other details of the scheme to avoid unintended consequences.”