The UK has launched a world-first bank transfer fraud refund scheme after more than two years in the works and last-minute changes influenced by industry lobbying and pressure from ministers.

From Monday, the Payment Systems Regulator (PSR) is requiring more than 1,500 banks, fintechs and other payment firms to reimburse victims of authorised push payment (APP) fraud up to a limit of £85,000 per claim.

Costs must be split between the companies used to send and receive the payment, with most refunds having to be settled within five working days. To refuse a claim, firms must prove the customer acted with “gross negligence”.

The rules only apply to transfers made to and from UK accounts and do not cover payments from before the 7 October implementation date.

The system allows payment firms to apply a £100 excess when settling fraud claims. This means that claims under £100 – representing nearly a third of APP scam cases last year – are not eligible for any reimbursement should the firm choose to charge the excess.

Not all firms intend to charge victims, and they must contact customers to lay out their position. Charges cannot be passed on to vulnerable customers.

The PSR has argued its measures are intended to minimise financial harm to consumers while ensuring they remain cautious of potential scams.

“Our new requirements will see all payment firms involved facing strong incentives to introduce more robust ways of identifying and preventing these scams from happening in the first place,” David Geale, the PSR’s managing director, said on Monday.

“Firms have already made a good start in making changes, and we expect to continue seeing new and innovative systems being rolled out to drive fraud out of our payment systems.”

The UK has become the only country to introduce this kind of mandatory reimbursement regime, which coincides with other measures designed to crack down on booming levels of online fraud.

The Treasury said last week that it would give banks more time to delay and investigate payments where there are reasonable grounds to suspect fraud.

Lenders will have up to four working days to either complete or refuse a payment, up from the current window of one working day.

Worries remain

The PSR confirmed on 25 September, less than two weeks before implementation, that it would lower the scheme’s refund cap to £85,000 from £415,000 after intense lobbying from the fintech sector and the Treasury raising concerns.

The regulator found in a review of high-value scams that of more than 250,000 cases, there were 18 instances of people being scammed for more than £415,000 in 2023, and 411 instances of more than £85,000.

But firms have continued to sound the alarm over the rules’ potential negative impacts for both the payments industry and consumers.

Fintech executives have warned that by sticking to its October implementation date, the PSR will leave many firms unprepared to handle refund claims. In June, trade body The Payments Association, which has more than 200 members, called for the rules to be delayed by a year.

The sector has also cautioned that firms are still at risk of heavy losses from multiple claims submitted by organised fraudsters. Trade body The Payments Association called for a £30,000 cap, which it claims would cover more than 95 per cent of cases.

Industry groups have further argued that the rules place no liability on technology firms for the roughly three-quarters of fraud that originates online.