APP fraud is one of the most damaging and fast-growing forms of fraud in the UK, costing the UK economy £3.3 billion annually, according to the Fair Banking Report issued by the all-party parliamentary group (APPG) in July 2025.
The APP fraud reimbursement scheme was introduced in October 2024 by the Payments Systems Regulator (PSR), together with the Bank of England, to incentivise payments firms to develop better systems for identifying fraud and strengthen consumer protection.
In summary, payments firms are required to reimburse customers who fall victim to APP fraud within 5 working days (where they have not been fraudulent or grossly negligent). The cost of reimbursement is split 50:50 between sending and receiving payment service provider. The maximum reimbursement per claim is £85,000 and firms are permitted to apply a £100 excess. There are additional protections for customers classed as vulnerable.
Latest figures from the PSR show that in the first year of the scheme being active:
These figures are good news for consumers. But it has increased the pressure on payments firms, both financially and operationally.
Although initial fears of an immediate surge in APP fraud claims did not materialise, volumes have increased steadily each quarter. Claims nearly doubled (up 91%) between Q4 2024 and Q3 2025. As claims need to be brought within 13 months of the final fraudulent payment in a claim, we are yet to see whether this rate of increase levels off once this time window kicks in. The PSR has stated that claims volumes are fluctuating as the reimbursement requirement takes time to bed in, and levels may rise as consumer awareness improves.
The resource required to implement the systems and processes to assess APP fraud claims can be significant. Anecdotally, for efficiency purposes, some firms are opting to reimburse all claims automatically, rather than undertake detailed assessments.
Where consumers are challenging a payment firm’s initial refusal to reimburse a fraud claim, the FOS is overturning the payments firm’s decision in around one-third of cases. While these rates will vary on a case-by-case basis, and some of the overturned claims will be from before the reimbursement scheme was introduced, the FOS’s track record of finding in favour of the consumer is a real consideration for payments firms when deciding whether to deny a claim.
Firms must ensure they can remain both financially and operationally resilient if claim volumes do continue to increase. They must also ensure they maintain and adequately document rigorous processes around decision making, showing that steps were taken as soon as possible after becoming aware of fraud.
Despite the positive consumer outcomes, there have been practical challenges with the implementation of the scheme, including:
The PSR has appointed an independent evaluator to conduct a review of the APP fraud reimbursement scheme, with the report due to be published in Q2 2026.
The industry has high expectations for what this independent review is going to achieve. However, firms and stakeholders should be aware that making policy change recommendations is not in-scope for this review.
Instead, the prime focus will be on whether measures such as the reimbursement requirement, balanced scorecard and confirmation of payee have delivered on their target outcomes, namely to reduce APP fraud, improve victim protection and strengthen trust in Faster Payments.
Payment firms need to review what the impact of the reimbursement scheme is on their business in a range of different business conditions, including stressed scenarios:
Firms should undertake granular forecasting to understand what the capital and liquidity requirements may be and identify potential pinch points in the business.
Operational resilience remains central to regulatory expectations for payments firms. The FCA expects firms to be able to consistently remain within their impact tolerances as set out in PS21/3 – Building operational resilience.
Firms should ensure their operational resilience planning, mapping and scenario testing adequately considers ongoing resource requirements – people, processes, technology, facilities and information – associated with the reimbursement scheme. This should also include third party risk management which is particularly important given the interconnectivity of the financial sector.
Payment firms should also ensure their winddown plans (WDPs) fully account for the financial and operational implications of the reimbursement scheme, including the ability to manage potential spikes in claims and maintain sufficient capital and resources to meet all regulatory obligations throughout the winddown period.
Firms must be able to demonstrate that they can continue to fund reimbursements and comply with the reimbursement scheme until permissions are cancelled. With many firms now preparing yearend reports and accounts, this is also a timely opportunity for management to reflect on developments over the past year and update their WDPs to ensure they remain current and fit for purpose.
For more information, contact Jarred Erceg, Alison Kopra or Lucy Freeman.
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