PSR to cut APP reimbursement limit to £85,000

Editorial

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The regulator has been forced to push down reimbursement levels amid fears that the new rules could put many smaller fintechs out of business. A lower threshold of £85,000 would bring the maximum sum protected in line with the financial services compensation scheme, which protects depositors if a bank goes under.

The PSR has kicked off a consultation on the new limit. The watchdog says the proposed new cap will still see over 99% of claims (by volume) covered.

David Geale, the PSR’s managing director, comments: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach. As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance. Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”

The PSR said last month there was a wide divergence between UK banks in the amount of payments fraud they were refunding to customers.

Some big banks, such as Nationwide and TSB, were fully refunding more than 95% of lost funds last year, while others such as digital bank Monzo, Danske Bank and AIB fully refunded customers in less than 10% of reported cases.

The PSR’s climbdown comes as fraud and scam cases reported to the UK’s Financial Ombudsman Service hit a record high in the second quarter of the year, with APP fraud accounting for over half. Between April and June 2024, consumers lodged 8734 complaints about fraud and scams – a 43% increase on the same time last year.

Speaking to the FT, Rocio Concha, Which? director of policy and advocacy, says: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously.

“Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures. This makes it more likely that scammers will continue to thrive on some payment platforms.”

By way of contrast, fintechs welcomed the news. Tiago Veiga, CEO at Aurum Solutions, says: “It’s a huge relief that the PSR has come to its senses and lowered the maximum payout. While well-intentioned, such a high refund cap would have significantly hindered the ability of smaller fintechs to compete with larger banks, stifling innovation in the long run. Given that no other country has such stringent reimbursement measures, this risked shrinking our fintech sector and driving firms out of the UK.”

Innovate Finance also applauded the turnaround but called for further reviews of the rules.

CEO Janine Hirt, states: ” We remain concerned that the PSR is still proposing that many cases which British courts have judged as gross negligence – such as ignoring repeated warnings from their bank or lying about a payment – would still be eligible for reimbursement. Today’s review by the regulator demonstrates that they have listened to our repeated warnings about a high maximum reimbursement negatively impacting competition in the sector. We now need to see the same commitment from the PSR to review other details of the regime in order to guard against unintended consequences.”