Confirmation of Payee scheme extension: what financial institutions need to know

UK· 3min January 5, 2023

Back in May, the UK’s Payments Systems Regulator announced that it would be undertaking a consultation to expand the Confirmation of Payee (CoP) scheme. This consultation focused on directing approximately 400 payment payment service providers (PSPs) to implement CoP.

In this article we’ll set out why it is a good idea for PSPs to sign up for the scheme, while providing context for the reasons for the extension and answering some key questions about CoP.

Why should financial institutions apply for the scheme? 

In order to protect their customers and their own reputation, financial institutions should be getting on board with the extension of CoP. Benefits of joining CoP for PSPs include:

  • Avoids the risk of being cut off from receiving payments and hence account holders not being able to receive funds
  • Avoids potential loss of new business as customers look for this when signing up
  • Reduced operating costs of dealing with fraud cases and misdirected funds
  • Provides customers with greater confidence in moving funds

What challenges will new entrants face and how can these be overcome?

There are a number of friction points and challenges that PSPs who want to be part of the extension of CoP will need to overcome. For a start, there’s the need to meet various terms and conditions set out by Pay UK and Open Banking.

On top of this, they’ll need to either build their own system for handling CoP into their existing infrastructure — which will require considerable expenditure and expertise — or find a third-technology party provider who can help them. Additionally, they’ll need to test their system ahead of launch, as well as managing it on an ongoing basis.  

Will CoP mean financial institutions bear more responsibility for protecting customers?

PSPs have a duty of care towards their customers and CoP means that they can increase the protections they offer to payers. They also have a responsibility to educate their customers about the kind of scams that are being actively used by fraudsters right now, and also about the importance of using CoP.

In terms of fraud prevention, there is still a great deal of uncertainty about just how effective CoP is in combating APP (Authorised Push Payment) scams. According to a poll of industry insiders conducted by UK Finance, 43% felt that the value of using CoP to help tackle APP fraud had been neutral at best if not useless. 

Linked to fraud prevention is reputational damage to financial institutions. We've heard of cases where some financial institutions are not allowing transfer of funds to institutions that are sitting outside of CoP at the moment. And if your customers can't receive funds from other banks, then they are not going to be very happy.

Will the extension of CoP be a success?

Bearing in mind that 92% of volume is already going through CoP, the extension of the scheme is about closing out the remaining 8%. It remains to be seen whether it'll be extended to the full 400 financial institutions, but the first phase of the extension will only involve 46 more banks.

It's the second phase, due to take place in 2024 where most of the question marks lie, concerning whether some of the smallest institutions will get on board. Overall, though, the fight against fraud will need to involve more than just the extension of CoP, but it will help support this, helping to enhance financial institutions’ reputations.

Written by

Chris Mullins
Chris Mullins Senior Product Manager