Tensions are rising between banking and payment companies and social media firms in the United Kingdom over who should be responsible for compensating people who fall victim to online fraud schemes.
Banks must begin paying victims of so-called authorized push payment (APP) fraud a maximum of £85,000 as of October 7. This is only applicable if the victims were duped or psychologically coerced into turning over the money.
App fraud is a scam in which scammers pose as people or companies offering services to get victims to send money.
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The £85,000 reimbursement amount might be expensive for big banks and payment companies. It is, however, less than the mandatory £415,000 reimbursement that the Payment Systems Regulator (PSR) of the United Kingdom had previously suggested.
After facing criticism from the industry, the PSR withdrew its request for the enormous maximum compensation payout. The Payments Association, in particular, said the amount would be too high for the financial services industry to handle.
But now that fraud compensation is becoming mandatory in the UK, concerns are being raised about whether financial firms are bearing the lion’s share of the expenses associated with assisting victims of fraud.
Thursday, the digital bank Revolut, based in London, charged that Meta was “woefully short of what’s required to tackle fraud globally.” This week, the owner of Facebook announced a collaboration with British lenders Metro Bank and NatWest to exchange information about fraudulent activity occurring on its platforms.
Revolut’s head of financial crime, Woody Malouf, stated that Meta and other social media platforms ought to contribute to the expense of compensating fraud victims because, if they don’t shoulder any of the burden, “they have no incentive to do anything about it.”
It’s not new for Revolut to demand that major tech companies pay financial compensation to users who fall for scams on their websites and apps.
Tech Firms Under Fire for Failing to Combat Online Fraud as Banks Face Rising Costs
Banks and tech companies have long been at odds with one another. Because more people are using digital platforms to pay others and make online purchases, there has been a sharp increase in online fraud over the past few years.
The Labour Party has draughted bills to compel tech companies to compensate victims of fraud that originates on their platforms, according to a June Financial Times report. It’s unclear if the government still intends to mandate, that tech companies compensate APP fraud victims.
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According to Matt Akroyd, a commercial litigation attorney at Stewarts banks will benefit further from their efforts to persuade the government to impose some regulatory liability on tech companies, following their success in reducing the maximum reimbursement limit for APP fraud to £85,000.
However, he added: “This issue is not likely to be resolved any time soon, because it is complicated to determine, what regulatory regime could cover those companies. That do not play an active role in the PSR’s payment systems and how.”
More generally, to help counter the rapidly expanding and ever-changing fraud threat, banks and regulators have long pushed social media companies to work more closely with retail banks in the U.K. Tech companies have been asked to share more specific information about how criminals are abusing their platforms, which has been a major demand.
Regulators and law enforcement emphasized the need for social media companies to take more action, during a March 2023 event for the U.K. finance industry, that focused on economic fraud.
“We have heard anecdotally from every company we speak with that social media platforms are the source of a significant amount of fraud,” Kate Fitzgerald, the PSR’s head of policy informed the gathering’s attendees.
To enable regulators to know, where in the value chain to concentrate their efforts, she said, “complete transparency regarding the fraud’s location was required.”
Authorities from the regulatory authorities, at the event also complained about social media companies’ perceived lack of action against and removal of attempts to defraud users of the internet.
The director general of the National Economic Crime Centre, a division of the U.K. National Crime Agency, Rob Jones, stated at the event that “the bit that’s missing is the at-scale social media companies taking down suspect accounts that are involved in fraud.”
To “really get them to get after it” Jones continued, it was difficult to “break the inertia” at tech companies.
Meta Rejects Liability for APP Fraud, Calls for Cross-Industry Collaboration
Reactions to proposals that Meta should be responsible for compensating victims of APP fraud have been met with resistance.
As stated by the social media behemoth in written testimony to a parliamentary committee last year, British banks are “too focused on their efforts to transfer liability for fraud to other industries” which “creates a hostile environment which plays into the hands of fraudsters.”
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Through its Fraud Intelligence Reciprocal Exchange (FIRE) initiative, the company said it can leverage real-time intelligence from major banks to help prevent fraud and advance and enhance its machine learning and artificial intelligence detection systems. The government should “encourage more cross-industry collaboration like this,” demanded Meta.
Revolut and other banks should collaborate with Meta on its FIRE framework, the tech giant emphasized to enable data sharing between the company and major lenders.
FIRE “is designed to enable banks to share information, so we can work together to protect people using our respective services” a Meta representative stated last week. “Since fraud impacts numerous industries, collaborative efforts are the only viable approach to addressing this issue.”
