Balancing risk and trust: The evaluation tightrope in APP fraud policies

APP fraud policies at a glance: What’s happening

The APP evaluation will assess whether measures such as the Reimbursement Requirement, Balanced Scorecard, and Confirmation of Payee have delivered on their target outcomes: reducing APP fraud, improving victim protection, and strengthening trust in Faster Payments. Its findings will shape not only the next phase of APP fraud regulation but also the credibility of the UK’s payments ecosystem.

For Payment Service Providers (PSPs), the stakes are high. The evaluation will consider operational impacts, compliance costs, customer outcomes, and unintended consequences such as moral hazard or market friction. Stakeholder input is critical to ensure the review reflects the practical experience of market participants and the diversity of the UK payments market.

The PSR is already inviting stakeholders to register interest and share contact details to participate, and the evaluator has requested input via a voluntary survey of PSPs. This is a prime chance for stakeholders to ensure they are represented, share evidence, and help shape a balanced and credible assessment that will influence fraud prevention, consumer protection, and innovation for years to come.

Setting the scene: The scale of APP fraud

APP fraud has become one of the UK’s largest fraud challenges, where individuals are tricked into willingly transferring money to fraudsters under false pretenses. Each year, thousands of individuals and businesses suffer significant losses due to APP scams, which can have deeply damaging financial and emotional consequences. There are various types of APP scams such as impersonation or romance scams and, historically, the instant nature of faster payments has made funds very difficult to recover. any payment made is more difficult to recover. 

Losses from APP fraud reached £213.7 million in the first 6 months of 2024, and reimbursement to consumers has historically been inconsistent under the voluntary Contingent Reimbursement Model, an industry scheme to help victims. The losses extend far beyond the financial; victims often suffer emotional distress, erosion of trust in the financial system, and banks face reputational damage that can undermine long-term customer confidence.

What’s being evaluated?

The evaluation will test whether the PSR’s measures have achieved their intended outcomes: reducing APP fraud, improving victim protection, and strengthening trust in Faster Payments. It will consider the combined impact of the policy suite, including:

• Reimbursement Requirement (from October 2024): Introduces consistent minimum standards for compensating APP fraud victims, mandating reimbursement within 5 days in most cases, splitting costs equally between sending and receiving firms, and offering extra protections for vulnerable customers.
• The Balanced Scorecard (first published in 2023): Requires 14 payment service provider (PSP) groups to report on three APP scam performance metrics:
  • The proportion of victims left out of pocket
  • The scam rate at sending firms
  • The scam rate at receiving firms (excluding recovered funds)The published report also includes data for eleven other smaller firms that were in the top 20 highest receivers of fraud.
• Confirmation of Payee: Requires around 400 PSPs to implement the Confirmation of Payee (CoP) system, which checks the name of the payee during transactions. This service must be offered to customers both when sending and receiving payments, to help prevent fraud and misdirected payments. Rollout began in 2019.

Further measures also under the umbrella of this programme include legislation which increases PSPs allowed time to process outbound payments when there are suspicions around fraud. The Reimbursement Claims Management System (RCMS), developed by Pay.UK was also introduced as part of the planned practical implementation of the reimbursement policies. It is designed to support PSPs in meeting their legal obligations and facilitate the management of claims for PSPs.

The real test will come in the evaluation of these policies, i.e., analysing whether they were effective. The PSR promised to deliver an independent evaluation of its APP fraud policies within two years of their introduction, and it has made progress towards this goal. They have appointed an independent party to lead the review and findings of the evaluation are expected in Q2 2026. 

Why is evaluating this policy important?

The stakes are far higher than individual reimbursement. The evaluation will determine whether the UK’s payments infrastructure can sustain:

• Public confidence in Faster Payments, the backbone of retail payments.
• Market innovation, if compliance costs weigh heavily on smaller fintechs, the UK risks undermining its position as a hub for payments innovation.
• Global influence, if the UK’s model succeeds, it will export a new regulatory template worldwide. If it fails, it risks being remembered as a well-meaning but flawed experiment.

What should you expect to see?

 Based upon policy specific statements published by the PSR it is likely there will be a focus on:

• Effectiveness of key policies against target outcomes
• PSP investment in end-to-end fraud prevention and detection
• Swiftness and consistency of reimbursement
• Consumer confidence in faster payments and digital banking

The key focus is expected to be the reimbursement requirement; however, a comprehensive evaluation should also consider the intertwined impacts of each aspect of the policy programme to ensure robust conclusions. 

It will also be important to identify and evaluate unintended consequences of the policies. These could include moral hazard, where guaranteed reimbursement reduces the incentive for victims of fraud to exercise proper caution;  increased incentives to commit fraud; increased friction in payment markets, which may negatively affect consumer outcomes and reduce international competitiveness; and the opportunity cost of higher compliance costs, which could mean resources are diverted from investments such as product development.

An additional challenge arises from the interplay between rising consumer awareness and staggered policy rollouts, which may make it difficult to distinguish genuine policy effects from broader behavioural trends. These factors highlight the importance of a careful, inclusive, and methodologically robust evaluation process.

To achieve this, we anticipate that gathering the required level of quantitative and qualitative data will require significant engagement with a broad range of industry stakeholders including consumers, PSPs, payment system operators, industry groups and trade bodies, and fraud and compliance technology providers.

Who should engage, and how

The evaluation will need to account for a wide range of stakeholder perspectives, including those of regulators, consumer groups, financial institutions, and technology providers. These groups may prioritise different outcomes and ensuring balanced representation will be important 

We recognise that PSPs may face barriers to engagement, including limited analytical capacity or fragmented data systems. Nonetheless, their perspectives are vital to ensuring the evaluation reflects the full diversity of the UK payments ecosystem.

That being said, evaluation will not be an easy task. Evaluators will face real barriers when it comes to undertaking a comprehensive and independent review. Defining an appropriate approach to evaluation will rely on industry insight and feedback.

Meaningful engagement from PSPs will be critical to ensuring the evaluation’s success. PSPs are uniquely positioned to provide insight into how these policies are working in practice, and their input will help shape a balanced and credible assessment. Given the diversity in firm size and structure, PSPs will experience the policies differently, particularly in relation to compliance costs, customer friction, and liability exposure. 

This could include sharing evidence and experiences related to:

• Operational impacts
• Customer outcomes
• Relevant data and metrics
• Unintended consequences

Participate in the evaluation

The PSR has already established a route for stakeholders to register interest and provide contact details for engagement and the evaluator has requested input via a voluntary survey of PSPs. We strongly encourage PSPs to take advantage of this opportunity and contribute to a process that will shape the future of fraud prevention, consumer protection, and trust in Faster Payments. If you do, you will help to:

• Ensure your organisation’s experience is represented.
• Help shape a balanced, credible assessment.
• Influence outcomes. The results will affect fraud prevention, consumer protection, and trust in Faster Payments for years to come.

If you would like to discuss how to effectively engage with this process in more detail, please reach out to Alison Kopra, Emily French or Emma Wilson.