Bella Henry examines the UK's mandatory reimbursement regime for APP fraud in Retail Banker International

If a significant proportion of authenticated push payment (APP) fraud arises from social media platforms, should these providers continue to be financially insulated from the harm they help facilitate?

David Geale, the Managing Director of the Payment Systems Regulator, recently told the Treasury Select Committee that there may be scope for a "more complex model" of APP reimbursement in future, which would take into account the origin of the fraud, rather than placing responsibility almost entirely on banks.

Despite government awareness campaigns and the introduction of mandatory reimbursement rules in October 2024, criminals continue to exploit weak controls in the digital ecosystems of technology companies. UK Finance data has consistently shown that 66% of APP scams originate online, with fraudulent schemes flourishing on social media platforms.

From romance fraudsters cultivating victims through messaging services, targeted promotions advertising investment scams, or AI-generated images and deepfakes facilitating impersonation and celebrity endorsement scams — the typical social media user encounters approximately 185 scam advertisements every month. However, there is a structural imbalance in the current reimbursement framework, which places almost the entire financial burden of reimbursement on payment service providers such as banks.

The mandatory reimbursement requirement signifies meaningful progress in consumer protection, however this brings the financial and operational burden of stopping scams to institutions who did not create or originate them. At the same time, scam advertisements generate revenue for social media platforms who suffer no financial or regulatory consequence when their users are defrauded.

Bella Henry, Associate in our Commercial Dispute Resolution team, writes in Retail Banker International, exploring how the UK’s mandatory reimbursement regime risks misallocating responsibility — and incentives — by focusing almost exclusively on banks, who are often the last line of defence rather than the source of the scam.

Requiring platforms to shoulder at least part of the cost would be both fairer to victims and the current compensators and, in our view, more effective in reducing fraud overall. Put simply – if platforms face financial consequences when fraud proliferates on their services, they will have stronger incentives to prevent it at source.

The mandatory reimbursement regime has undoubtedly been a step forward for consumers, ensuring that victims of APP fraud are no longer left to bear the full cost of their losses. But it has created a structural imbalance. Payment service providers are held financially accountable for fraud they did not initiate, tolerate, and often could not prevent, while platforms profit from advertising and engagement that fuels the scam economy.

If we are serious about preventing APP fraud, then incentives must be aligned at every point in the fraud chain. 

Read the full article in Retail Banker International here.