Authorized Payment (App) fraud is an increasingly common type of social engineering scam, where fraudsters trick consumers or businesses into sending money to accounts they control. Unlike other forms of fraud, APP scams rely on convincing the victim to authorize a legitimate-looking payment, making the situation far more complicated when it comes to recovering lost funds.
With the rise in digital transactions and the sophistication of these scams, it’s critical that consumers and businesses understand not only how APP fraud works, but also the new regulations aimed at protecting victims.
What is Authorized Push Payment (APP) Fraud?
In an APP fraud scheme, the scammer convinces the victim to make a direct payment to what appears to be a legitimate account. These scams often involve impersonating a trusted entity such as a bank, a government body, or even a known business partner. Some common types of APP fraud include:
- Impersonation scams: Fraudsters pose as someone you know or trust, such as your bank or a supplier, convincing you to transfer money.
- Invoice fraud: Scammers trick businesses into paying fake invoices by pretending to be legitimate suppliers or contractors.
- Purchase scams: Fraudsters set up fake online stores or listings, tricking consumers into paying for goods or services that don’t exist.
New APP Fraud Protections: What to Expect
To address the increasing prevalence of APP fraud, new regulations came into force in October 2024, offering enhanced protections for UK victims. Here’s what you need to know:
- Faster Reimbursement Process: Most consumers can expect to be reimbursed within 5 business days after making a claim. This is a significant improvement from previous lengthy reimbursement timelines. Payment firms, such as banks, will work swiftly to assess claims and make decisions, ensuring a quicker resolution for victims.
- Extended Time for Complex Cases: In some cases, payment firms may need more time to gather information to complete their assessment. For example, if they need additional details from the victim or if the victim’s vulnerability needs to be evaluated, they may “stop the clock” on the 5-day window. However, the final decision must be made within 35 business days to avoid unnecessary delays.
- Optional £100 Excess: Firms have the option to apply an excess of up to £100 on claims, meaning victims may be liable for the first £100 lost. However, vulnerable consumers are exempt from this excess, ensuring that they are fully reimbursed for their losses.
- Compensation Limits: Consumers can claim up to £85,000, aligning with the Financial Services Compensation Scheme (FSCS) limit, which will cover over 99% of cases. If losses exceed this amount, a claim can be lodged with the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000 depending on the specific circumstances of the case.
How Businesses Can Strengthen Their Defenses
Although APP fraud specifically relies on human deception, businesses can implement broader fraud prevention strategies to reduce their overall risk of falling victim to such scams. Businesses should not only educate their teams on the dangers of APP fraud, but also invest in fraud prevention solutions that monitor suspicious activities and offer multi-layered protection.
- Monitor Financial Transactions in Real Time: Advanced fraud detection systems can help businesses monitor and flag suspicious transactions. These systems can still catch anomalies that may indicate a compromised account or an unauthorized payment request.
- Regular Security Audits: Conduct regular audits of your security processes, including payment systems and employee training. Ensure that employees are aware of evolving threats and that your company’s internal procedures are designed to minimize the risk of falling victim to social engineering scams.
- Collaboration with Fraud Prevention Experts: Engage with fraud prevention vendors to gain insights into the latest fraud trends and implement the most up-to-date protective measures. These collaborations can help identify vulnerabilities in your processes and offer solutions tailored to your business.
With APP fraud becoming increasingly sophisticated, both consumers and businesses must stay vigilant. The new regulations will undoubtedly provide stronger safeguards, but awareness and proactive prevention are still crucial to maintaining trust and safety. By staying informed and prepared, both individuals and businesses can reduce their risk of falling victim to APP fraud and ensure that they’re better protected against future scams.
