UK Banks and Tech Firms Clash Over Responsibility for Online Fraud Compensation

UK Banks and Tech Firms Clash Over Responsibility for Online Fraud Compensation

Tensions are rising between UK banks, payment companies, and social media platforms over who should bear the financial responsibility for compensating victims of online fraud. From October 7, 2024, banks will be required to compensate victims of authorized push payment (APP) fraud, with a maximum payout of £85,000. This form of fraud involves scammers convincing individuals to transfer money by posing as legitimate entities.

While the £85,000 limit is lower than the initially proposed £415,000 by the UK’s Payment Systems Regulator (PSR), concerns remain among financial institutions about the costs they may face. Industry group Payments Association had opposed the higher cap, arguing it would impose an unsustainable burden on banks. Now, with the mandatory fraud compensation rolling out, the debate has shifted toward the role of tech companies in tackling fraud and whether they should also share liability.

On Thursday, Revolut, a London-based digital bank, criticized Meta for not doing enough to prevent fraud globally. Woody Malouf, Revolut’s head of financial crime, urged tech companies to help cover fraud compensation costs, stating that without such responsibility, they lack incentives to curb online scams. This call follows a new partnership between Meta and UK lenders NatWest and Metro Bank to share intelligence on fraudulent activity on Meta’s platforms.

The tension is not new. Over the past few years, banks have increasingly sought to hold tech firms accountable for scams that originate on their platforms. Earlier this year, the Labour Party proposed that tech companies should reimburse fraud victims, though it remains unclear whether the government will move forward with this idea.

Banks have long called for better cooperation with social media platforms to address the growing threat of online fraud. Regulators and law enforcement agencies, too, have urged tech firms to share more information about how fraudsters exploit their platforms. At a finance industry event in March 2023, Kate Fitzgerald, head of policy at the PSR, stressed the need for greater transparency from social media companies to help target efforts against fraud.

Despite these calls, social media firms, including Meta, have been reluctant to take on financial liability. Meta has argued that the focus should be on cross-industry collaboration. The company has developed initiatives like the Fraud Intelligence Reciprocal Exchange (FIRE), which allows banks to share information on fraud in real time. However, Meta maintains that fraud is a cross-sector problem and that blaming individual industries for compensation risks helping fraudsters by creating a fragmented response.

The debate is expected to continue as financial institutions push for regulatory changes that could force tech companies to take on a greater share of the responsibility for online fraud prevention.