PSR to reduce APP repayment limit to £85,000

Editorial

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The regulator has been forced to lower the reimbursement levels amid concerns the new rules could bankrupt many small fintechs. A lower threshold of £85,000 would bring the maximum amount protected in line with the Financial Services Compensation Scheme, which protects depositors if a bank fails.

The PSR has launched a consultation on the new cap. The watchdog says the proposed new cap will still cover more than 99% of applications (by volume).

David Geale, PSR Chief Executive, commented: “We have listened to concerns about the refund limit and committed to gathering further evidence to inform our approach. As a result, we are currently consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance. Under our proposals, UK consumers will continue to benefit from world-class protection, payment providers will continue to have strong incentives to improve fraud protection and we maintain effective competition and innovation in the market.”

The PSR said last month that there was a wide divergence between UK banks over the amount of payment fraud they were reimbursing to their customers.

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

The PSR decline comes as fraud and scam reports to the UK’s Financial Ombudsman Service hit a record high in the second quarter of the year, with APP fraud accounting for more than half. Between April and June 2024, consumers made 8,734 fraud and scam complaints, a 43% increase on the same period last year.

Speaking to the FT, Rocio Concha, Which?’s director of policy and advocacy, said: “It’s outrageous that the payments regulator is prepared to water down vital protections against scams weeks before they come into force and that this move follows months of lobbying from companies that refuse to take fraud seriously.

“Reducing the reimbursement cap risks exposing victims of the most costly scams to devastating financial and emotional harm and also significantly reduces the crucial financial incentives for payment companies to implement effective fraud protection measures. This makes it more likely that scammers will continue to thrive on certain payment platforms.”

Fintechs, on the other hand, welcomed the news. Tiago Veiga, CEO of Aurum Solutions, said: “It is a huge relief that the PSR has come to its senses and lowered the maximum refund amount. While well-intentioned, such a high refund cap would have significantly hampered the ability of smaller fintechs to compete with the big banks, stifling innovation in the long term. Given that no other country has such strict refund measures, it risked shrinking our fintech sector and causing companies to leave the UK.”

Innovate Finance also welcomed the turnaround, but called for further revisions to the rules.

Janine Hirt, CEO of PSR, said: “We remain concerned that PSR continues to propose that many cases that the UK courts have found to be grossly negligent – ​​such as ignoring repeated warnings from their bank or lying about a payment – ​​should still be eligible for reimbursement. Today’s review by the regulator demonstrates that it has heard our repeated warnings that a high maximum reimbursement would have a negative impact on competition in the sector. We now need to see the same commitment from PSR to review further details of the scheme to guard against unintended consequences.”