We have seen in the past where fraud shifts due to the introduction of technologies or more stringent processes in other areas. An example of this is when chip and pin cards were introduced, and the fraud shifted from compromised credit cards to the point of application.
Should banks be concerned about a Contingent Re-Imbursement Model?
Below are some considerations:
- Fraudsters could persuade customers to accept or ignore any confirmation of payee warnings. However, this process may cause some victims to stop and think.
- Banks will need to prove that the customer was negligent. This model may make it more likely for a bank to simply pay out even if there were warnings that were ignored.
- Fraudsters could take advantage of the fact the Contingent Re-Imbursement scheme exists and by allowing them to exert more influence on the customer – “it really doesn’t matter if I am a fraudster as you can get your money back anyway!” or increase collusion in a similar way to “crash for cash” within the insurance industry. Groups of customers could collude and open bank accounts through banks with weak onboarding and AML controls. In some ways this could be an extension of money mules.
- If a confirmation of payee approach is used with a threshold such as first transaction value or customer risk flags, then this could mean any claims below the threshold will be automatically paid out. We could find that fraudsters will look for smaller amounts across more customers.
- Fraudsters may start using non-UK bank accounts for the recipient of funds.
- Guides already exist of how to reclaim money under a scheme similar to the Contingent Reimbursement Model.
- We know from PPI (Payment Protection Insurance), and insurance claims, that “genuine and honest” people can get sucked into reclaiming money that they are not necessarily entitled to. Can we expect to see a raft of solicitors using this as part of a claims process and charging a fee?
- As the victim transfers to the bank and there are no longer vulnerable adults or organisations, the Police may choose to not investigate and record crimes. In part this would also reduce police recorded crime figures for fraud.
The Contingent Re-Imbursement Model is designed to put pressure on banks to implement procedures to reduce the likelihood of Push Payment Fraud. This will happen and be good for the genuine consumer, but for the reasons outlined above we might find that there is an increase in the losses faced by banks and the amount of frauds that are attempted or paid out.
One area which has increased in focus however is around the bank account being used for the receipt of funds – whether this is a (mule) account opened specifically for the purpose or one taken over. It has meant that banks are looking more closely at those accounts which historically have not created losses for a bank, but in the new operating model will do. As with the themes in fraud, reducing the opportunity (controls) and motivation for fraudsters will result in positive results – but banks need to consider all of the areas and not just one aspect of the solutions proposed.
For my latest blogs on current identity and fraud market issues and challenges please click here.