Muhammad Al Mamun, La Trobe University
British banks will soon be required to reimburse customers who fall victim to authorised push payment fraud – where a scammer convinces you to authorise a payment, generally by masquerading as a legitimate business or person.
The new rules from the UK’s Payment Systems Regulator are intended to incentivise all businesses involved in payments to take more action against scam activity, with reimbursement costs split 50:50 between the bank that sends and the bank that receives the payment.
There is a strong case that banks and other payment providers in Australia (and New Zealand) should be made to do the same. Scam-related losses are soaring, and banks are falling short of detecting, stopping and recovering losses.
In 2022, Australians lost at least $3.1 billion to scams – an 80 per cent increase on 2021. The Australian Competition and Consumer Commission says the actual losses were far higher, because about 30 per cent of victims don’t report their loss to anyone.
While the biggest losses came from investment scams (totalling $1.5 billion), payment redirection scams – where a scammer impersonates a business or individual asking for payment – amounted to $224 million.
Among the most vulnerable groups are older people (25 per cent of losses were reported by those aged 65+), people with a disability (6 per cent of reported losses), and people from culturally and linguistically diverse communities (almost 10 per cent of reported losses).
What are Australian banks doing?
No regulations oblige Australian banks to reimburse scam victims, though some banks have self-governed reimbursement policies.
While banks have dedicated fraud teams to prevent scams and support victims, the most recent review of the four major banks’ processes by the Australian Investments and Securities Commission, published in April, says they detected and stopped just 13 per cent of scam payments.
Reimbursement policies and practices varied from bank to bank but the overall rate was low – ranging from 2 per cent to 5 per cent.
The review described the banks’ approaches to liability, reimbursement and compensation as “inconsistent and generally very narrow”.
Why the UK has made banks responsible
The greater obligations being imposed on British banks follows attempts by the UK’s Payment Systems Regulator to improve consumer protections through a voluntary code of conduct.
Introduced in May 2019, this voluntary code was intended, under certain conditions, to ensure the reimbursement of victims of “authorised push payment” scams. These conditions included the customer taking reasonable care and notifying any scam incident to the bank.
It had modest success, with 46 per cent of reported scam losses being reimbursed between 2020 and 2022.
But the Payment Systems Regulator wants 95 per cent. So it has pressed for a mandatory reimbursement scheme. Under the new provisions money must be reimbursed within 48 hours of a fraud being reported.
The idea is to get banks to put more effort into detecting and preventing scams.
Overall, the UK has accepted the need for a more regimented regulatory approach over a market-based one.
A more pragmatic approach needed
While the Australian Investments and Securities Commission’s own reports have revealed the sorry state of scam prevention, management, and reimbursement practices at major banks, the regulatory body is still not walking in the footsteps of the UK. It is instead advising banks to improve their governance and scam management practices.
The Australian Banking Association, which represents the banking sector, has strongly argued against regulation supporting mandatory reimbursement. It has even suggested this could increase scamming losses because of the risk customers will take less care if they know any losses will be covered by their bank. It has called for greater personal responsibility in preventing scam losses.
But such an argument ignores the effects of the digitisation push by financial service providers, which has made scamming so much easier. Scammers are also becoming more sophisticated.
The statistics speak for themselves. Scamming losses are increasing. Recovery rates are meagre. A more pragmatic approach based on this reality and banks’ fiduciary responsibilities is needed.
Muhammad Al Mamun, Senior Lecturer in Finance, La Trobe University
This article is republished from The Conversation under a Creative Commons licence. Read the original article.
Have you lost money to a scammer? Do you think it’s right that banks reimburse victims? Let us know what you think in the comments section below.
Also read: Task force makes costly investment scams top priority
I like many people in Australia have been the victim of various scams that are STILL on various social media platforms…. And yet these social media platforms have allowed such scams to continue to filter through our feeds.
The Australian Government should be discussing measures to combat such heinous acts AND the banks should be MADE to pay those of us who’ve been scammed regardless of how much or how little the amounts were!!
Bankwest whom I bank with, insulted my intelligence by giving me $600 earlier this year, a $100 increase from last year as a ‘good will gesture ‘!!!! I went through AFCA… And what for?!!! For them to send my information BACK to Bankwest for an independent review!!!!! HOW OS THAT INDEPENDENT?!!!!! It’s only independent if, in my case Bankwest – weren’t the financial establishment that my file was sent to via AFCA….
The banks should be held accountable as we allow and trust such establishments to protect us and our finances of which they’re CLEARLY not doing in this already expensive country/continent!!!
Australia is behind in many respects and THIS is another to add to the list of inadequacies of this country.
It is wrong to assume and it is an assumption as to who have been impacted by scammers…. It’s NOT just certain demographics that are impacted on, that’s a very judgemental statement to make!!!
If it is possible and practical to have banks and other financial institutions reimburse scammed payments then yes they should be made to do so. But preferably they should be in a position to prevent such payments being made.