This week, the head of UK Finance – a trade association for the UK banking industry – argued that consumers should pay tax on transactions to generate a fund for compensating victims of fraud. Stephen Jones made his case to the influential UK Treasury committee, stating it should not always be lenders that pay out when criminals trick consumers into transfers.
As mentioned in our previous blog on banking fraud, data from UK Finance shows that £145 million was stolen in the first half of 2018 through ‘authorized push payment’ (APP) scams, with only £31 million returned to the victims.
Jones’ proposed solution to this is to “make a tiny levy on each payment” in the UK, to ensure that funds exist to compensate victims. This immediately hit a bad note with UK consumer groups, with the head of Which? among many saying that neither consumers or victims should be paying for this issue, and that the cost ‘needs to sit with those that are best placed to manage risk and protect customers’ – which is the banks.
This proposal threatens to set a very dangerous precedent when it comes to responsibility for fraud. While some fraud, such as APP, is not the fault of the bank, often it could have been halted if the bank had better fraud prevention or security solutions in place for its customers.
Furthermore, APP only makes up a fraction of the more than £500 million UK Finance has counted as fraud losses in the first half of 2018. The remaining £358 million worth of loss is attributed to unauthorized fraud, such as criminals stealing and using credit card details and account information.
While it’s true that some of these losses can be blamed on third-parties – such as payment details being stolen in retailer data breaches – ultimately, financial organizations need to have more rigorous procedures for identifying and stopping fraudulent online transactions taking place.
Why We Need to Get to the Root of the Fraud Issue
UK Finance’s proposal to levy a tax on consumers demonstrates two things. First, banks are starting to feel the burden of hefty fraud losses through more sophisticated online crime. Second, they are becoming increasingly unwilling to foot the bill.
Rather than addressing the key drivers of fraud – such as the rise of cybercrime – unfortunately, the proposal from UK Finance seems like somewhat of an approach in the banks’ interests to shift financial responsibility to the customers to avoid continued impact the banks’ profits.
However, passing the buck to consumers does nothing to improve security and fraud defenses. If fact, with the fraud burden now shared with customers, it will probably increase the propensity to write off fraud loses as “the cost of doing business”.
This is a short-sighted solution. We know that online fraud is growing every year, in no small part due to changing banking habits among consumers. Just this week, concerning data was published in the UK that shows criminals are increasingly targeting young adults for banking fraud, undoubtedly because they are more likely to transact online.
As digital continues to grow as the preferred method for banking, financial institutions have to deal with the issue head on – exploring new solutions to help combat cybercrime, and get to the heart of the issue. Rather than alienating customers by shifting the loss burden to them, banks can actually leverage modern technology to protect customers even without their knowledge or effort. To find out how Trusted Knight can help your organization protect your online customers and prevent fraud, click one of the links below.