Working together to tackle APP fraud

Dear Customer,

A warm welcome to our latest newsletter. Today, I want to focus on tackling Authorised Push Payment (APP) fraud, especially in relation to the new Payment Systems Regulator (PSR) requirements that were announced in June.

These requirements will go live in 2024 and will ensure that more victims of APP fraud will get their money back, with most of these customers being reimbursed within five working days. Banks and Payment Service Providers (PSPs) will be incentivised to take responsibility, with both sending and receiving firms splitting the costs of this reimbursement 50:50.

For Form3, we believe that you can only successfully provide payment technology to major financial institutions if you have an effective solution for payment fraud prevention as well. We see both services as being two sides of the same coin.

With these challenges in mind, what is Form3 doing to support you in tackling this type of fraud, and what wider advice can we offer financial institutions?

Firstly, we are developing our APP Fraud Prevention product that is anticipated to go live for customers later this year.

Currently at Proof-of-Concept (POC) stage, our solution is being supported by a consortium of banks. This consortium intelligence approach is a great way to build data models on risk associated with the beneficiary – a key element of APP fraud, where the person receiving the money is deemed to be the criminal.

Form3’s POC comprises real-time integration with payment workflows. This means that the customers taking part have not had any integration costs to meet. In addition, we are focusing on inbound and outbound scoring – so the participating banks will get both risk scores and insights on both sending and receiving transactions. The result being they can manage their risks on both legs of the payment transaction.

Secondly, the wider advice we can offer banks and PSPs in tackling APP fraud is to invest in a holistic fraud prevention strategy. This includes improving onboarding, so paying close attention to the Know Your Customer (KYC) approach, where identifying and verifying the client's identity when opening an account becomes crucial, and Confirmation of Payee (CoP) where the sending bank is checking the beneficiary account name against the account number. In summary, tackling fraud requires a range of different measures - there is no magic wand that produces a single solution here.

Going forward, fraud is a topic that I am passionate about tackling. This form of crime often targets those most vulnerable in society – typically those who are not tech savvy in their mindset. Historically, the UK has been badly affected by APP fraud, but due to this, it is also leading the charge when it comes to putting in place liability provisions to tackle fraud. Addressing these new PSR requirements could see Europe and the US looking to the UK for guidance and advice, as we are leading the way in real-time payment technology.

Thank you for taking the time to read my introduction column.

Written by

Michael Mueller Executive Chair

Michael set up Form3 in 2016 after spending more than 25 years in executive positions with Deutsche Bank, Royal Bank of Scotland, and Barclays. Before that, he was Global Head of Cash Management and a Member of the Corporate Banking Executive Committee at Barclays.  

For many years Michael has been passionate about driving digital change and innovation in global banks and has sponsored many key initiatives in this area, including white-labeling, biometric security, cloud-computing and mobile payment/banking technology.  

Re-engineering payment back-office systems in response to industry developments, customers demand, capacity constraints, cyber threats, payment fraud and cost challenges has been a strong focus of Michael’s work during his time in financial services and as the CEO of Form3.  

In October 2023 Michael handed over his responsibilities as CEO to Mike Walters and was appointed Executive Chairman, focussing on governance, investor relations, strategy, corporate development, key clients and industry initiatives.  

Michael holds a degree in Organisational Psychology and a Master of Business Administration from INSEAD.