Following the Payment Systems Regulator's (PSR) announcement of new reimbursement requirements for Authorised Push Payment (APP) fraud in late 2023 (as discussed in our previous article), the industry has been grappling with how to best implement these changes. The rising tide of Authorised Push Payment (APP) fraud is a significant threat to the UK's financial system, demanding immediate action from Payment Service Providers (PSPs). In 2023 alone, the UK saw 250,000 APP scams, resulting in losses of nearly £341 million. This alarming trend has eroded trust in digital banking and highlighted the vulnerability of consumers and businesses alike.
One case involved an individual losing £39,000 to scammers posing as bank representatives. Despite initial suspicions, the victim was tricked into transferring their savings into their Revolut account and granting the scammers access. Revolut denied a refund, claiming the victim authorized the transactions. This case highlights the vulnerability of consumers to such scams and the lack of adequate protection from financial institutions. The Payment Systems Regulator found that many banks and payment providers refunded less than 50% of APP fraud losses, placing the financial burden on victims.
In its response, pressing for greater accountability and transparency among financial institutions to protect vulnerable consumers, the PSR has introduced a new reimbursement requirement that mandates PSPs to reimburse victims of APP fraud. This reimbursement mandate, which came into force on 7th October 2024, stipulates that the cost of reimbursing victims is to be shared 50:50 between the sending and receiving payment firms. It also calls for additional protections for vulnerable customers. To manage these reimbursements, the PSR in collaboration with Pay.UK has introduced a system called the Reimbursement Claims Management System (RCMS).
The Industry Solution: RCMS
The RCMS is a single, whole-of-market solution designed by Pay. UK to help PSPs and banks meet the PSR's requirements for reimbursing APP fraud victims. It provides a standardized system for processing claims and securely sharing information between institutions. Furthermore, RCMS is built to reduce fraud losses for sending PSPs by holding receiving PSPs liable for 50% of the loss.
Is RCMS enough?
While RCMS offers a basic framework for managing APP fraud reimbursement claims and achieving compliance with the PSR’s APP fraud mandate, it's important to acknowledge its limitations. As claim volumes increase, sole reliance on manual case creation in RCMS may become unsustainable in the long run. Moreover, while RCMS serves as a standalone solution, it presents certain limitations that could impede efficiency and adaptability. Let’s delve into some of these limitations:
Integration Challenges: While Pay.UK allows for the RCMS integration with PSPs' claims management systems, it does not support integration with other critical systems within the PSP's landscape, such as Customer Relationship Management (CRM) systems, Fraud Prevention & Detection Systems and Customer Communication platforms. This limited integration could lead to a disjointed customer experience with repeated information requests and conflicting communications. Seamless integration across various critical systems is essential for streamlining operations and ensuring a foolproof user experience through system harmonization.
Limited Customization: As an industry-standard solution, the RCMS offers a standard user interface and pre-defined workflows that cannot be tailored to meet the specific organizational needs of each PSP. For example, a PSP would want to implement specific business rules to automate the processing of low-value claims or to flag high-risk customers. Customizing workflows, defining internal SLAs, and implementing specific business rules for achieving straight-through processing are not features that the RCMS solution offers today.
Insufficient Fraud Insights: Effective fraud management relies on deep insights from fraud claims to identify trends and patterns, enhancing detection and prevention systems proactively. Currently, deriving such actionable intelligence directly from RCMS is challenging. This limitation can prevent PSPs from proactively identifying and mitigating emerging fraud threats, leading to increased losses and reputational damage.
The need for a complementary solution
In light of the above-mentioned constraints, there is an obvious need for a solution that not only complements RCMS but also provides enhanced functionalities to address its current limitations. A plug-and-play solution, purpose-built for fraud reimbursement management, would ideally fill this gap by seamlessly integrating and harmonising with both RCMS and existing core banking systems.
Such an in-house solution would need to be scalable and capable of automating the creation of claims from the initial fraud information, significantly reducing the administrative burden of manually entering cases into the RCMS. This automation would streamline operations and ensure that fraud claims are processed swiftly and accurately. The advanced level of integration and customization that such a solution could offer goes beyond the scope of what RCMS can provide today and would grant PSPs greater control over the entire APP fraud investigation journey.
Our APP fraud framework
Cognizant's Smart APP-Fraud Reimbursement Framework, built on the Camunda platform, empowers PSPs and banks to effectively combat the growing threat of APP fraud. Our framework seamlessly integrates with critical banking systems, including RCMS, breaking down data silos to provide a comprehensive view of fraud operations and customer interactions.
Our custom-built user interface simplifies complex tasks for fraud specialists, enabling them to efficiently manage claims, collaborate with other PSPs, and identify suspicious activities with ease. With intuitive dashboards and automated workflows, specialists can process claims faster and make more informed decisions.
Built on the low-code Camunda platform, our framework offers unparalleled flexibility. Banks can rapidly adapt to evolving fraud tactics, new payment types, and changing regulations by easily customizing the system to meet their specific needs.
How can Cognizant help?
Cognizant partners with banks and PSPs to combat APP fraud, starting with strategic consulting to define a future-proof solution tailored to their specific needs. Through this partnership, vulnerabilities are assessed, objectives are defined, and a roadmap is built for implementing our Smart APP-Fraud Reimbursement Framework. This framework leverages intelligent automation, advanced analytics, and seamless integration with your existing systems to streamline workflows, proactively identify threats, and ensure ongoing compliance with evolving regulations.
Conclusion
While the PSR's mandated reimbursement framework and the RCMS system are positive steps in managing APP fraud reimbursement claims, RCMS alone falls short of providing a comprehensive solution. Its one-size-fits-all approach lacks the flexibility and integration capabilities necessary for PSPs to optimize their fraud operations and meet evolving regulatory needs.
To truly combat APP fraud reimbursement claims, PSPs need a complementary solution that seamlessly integrates with existing fraud management systems, offers customization options, leverages fraud data for proactive prevention, and streamlines operations through intelligent automation. This holistic approach will empower PSPs to protect their customers, enhance efficiency, and adapt to the ever-changing fraud landscape.
For a more in-depth look at the PSR's regulatory requirements surrounding APP fraud, please read our article Unpacking the Payment System Regulator’s outcome-based reimbursement requirements. Connect with me on LinkedIn or email me at vivek.santhosh@cognizant.com to arrange a consultation and see a working prototype of the solution.
