Thought Leadership· 3min June 23, 2023
The U.K. banking industry is currently facing a new wave of regulations aimed at tackling push payment fraud. In an interview with Karen Webster, Form3 CEO Michael Mueller said new rules that establish guidelines to reimburse victims of push payment fraud underscore the depth of the problem — but don’t go far enough.
“What’s effectively happening is that the sending and the receiving bank of a fraudulent transaction will have to share the responsibility and the liability for the damage incurred,” Mueller said. “And that means both of them are on the hook for half of the damage. And that’s new.”
The banks will be required to reimburse consumers for push payment fraud if money goes into a fraudster’s bank account.
The impact of fraud — where 41% of fraud in the U.K. has been estimated to be tied to push payments — is not just financial.
“Victims often feel embarrassed and lose trust in others when they’ve fallen prey to, say, invoice or romance scams,” Mueller said, adding that elderly people are especially vulnerable.
As Mueller told Webster, there’s been only a slightly positive impact from the implementation of confirmation of pay, as the account holder is identified before making the payment, matching the account name with the account number.
Mueller explained that Form3 is introducing artificial intelligence (AI) as part of the payment processing that scans community data to identify patterns and payment datasets. This helps assign risk scores to beneficiary accounts in flight, which can help banks decide whether to approach the payer or stop the payment.
“You need to look at the beneficiary account — and where the money’s going,” he said.
That’s easier said than done. Banks can introduce friction to combat fraud, but this may be problematic in an age where real-time payments are becoming more prevalent — and an expectation on the part of consumers. However, AI can be used to identify patterns and assign risk scores to beneficiary accounts, which can help reduce fraud.
Mueller emphasized that banks need to work together to solve this issue. Banks must share data and implement the technology to scan the data to identify as many fraudulent attempts as possible. He added that it’s a technical upgrade exercise required to ensure that push payment fraud is kept under control.
Technology can help identify fraudulent activity, but fraudsters are clever and efficient, and it’s a scale game for them. Money “mule” scams — where complicit or unwitting victims move funds on behalf of criminals and networks — represent a particular threat, he said.
It’s helpful “if you can actually identify fraudulent activity in datasets that you have and run artificial intelligence algorithms on top of that to basically identify those,” Mueller said. “That’s how the card companies are controlling fraud, and I think there are some lessons to be learned there.”
He noted that assigning a “risk score” to beneficiary accounts can help banks decide whether they want to let a transaction be completed — or not — and whether the payee needs additional friction introduced before the proceeding.
“This is going to be another tool in the armory of banks to control fraud a lot more. At the end of the day, it’s all about data,” Mueller said, adding that “technology can be helpful — and can be an ultimate form of defense.”
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.