What is APP (Authorised Push Payment) Fraud?

Authorised Push Payment (APP) fraud, also known as "bank transfer fraud," is a type of scam in which victims are tricked into willingly transferring money from their bank accounts to fraudsters under false pretences. Unlike traditional fraud where the scammer gains unauthorised access to a victim’s account, in APP fraud, the victim is an active participant, albeit deceived, in the transaction. This type of fraud has become increasingly prevalent with the rise of digital banking and mobile payment platforms, affecting both individuals and businesses.

How Does APP Fraud Work?

The essence of APP fraud lies in the manipulation and exploitation of trust. Fraudsters use a variety of tactics to convince victims that they are making legitimate payments, often posing as trusted entities such as banks, service providers, or government agencies. Some common methods include:

1. Impersonation Scams: Scammers pose as a trusted organisation or authority figure, such as a bank, law enforcement, or utility company, to convince the victim to transfer money to a "safe" account. These scams often involve pressure tactics, making victims believe their money is at risk if they do not act quickly.
2. Invoice Scams: Fraudsters hack into email accounts of businesses or individuals to intercept legitimate invoices. They then alter the payment details, instructing the payer to send the money to a fraudulent account.
3. Investment Scams: Fraudsters persuade victims to transfer money to an account under the promise of a high-return investment, which later turns out to be a fraudulent scheme.
4. Romance Scams: In these scams, fraudsters build an emotional relationship with the victim, gaining their trust over time before asking for money under false pretences.

Why Is APP Fraud Difficult to Combat?

The unique challenge of APP fraud lies in its authorised nature. Since the victim willingly transfers the money, the legal and recovery process becomes more complex. Unlike unauthorised fraud, where a bank can easily refund the money, APP fraud requires banks to determine whether or not the victim acted negligently or if they were truly deceived.

Additionally, APP fraudsters often use multiple accounts or transfer money through numerous channels, making it harder to trace and recover the stolen funds.

Steps to Protect Against APP Fraud

Preventing APP fraud requires a combination of vigilance, technology, and education. Here are some steps individuals and businesses can take to safeguard themselves:

1. Verify Before You Pay: Always verify the identity of the person or business requesting a payment. Contact them using official channels, especially if you receive an unexpected request.
2. Look Out for Pressure Tactics: Fraudsters often create a sense of urgency, claiming your money is at risk. Legitimate organisations will never pressure you into transferring money immediately.
3. Be Aware of Changes in Payment Details: If a supplier or business suddenly changes their payment details, confirm with them directly via phone or a secure email before transferring any money.
4. Use Payment Confirmation Tools: Some banks offer payment confirmation services that verify the account name matches the intended recipient before the transfer is made. Using these tools can prevent APP fraud.
5. Educate Employees: For businesses, educating employees on the risks of APP fraud and encouraging verification practices can help avoid falling victim to invoice and impersonation scams.

What Are Banks Doing to Combat APP Fraud?

In response to the growing threat of APP fraud, banks and financial institutions have begun implementing several measures to protect their customers:

• Confirmation of Payee (CoP): This service helps verify that the name of the recipient matches the account details provided before the transaction is completed. This extra layer of verification reduces the chances of sending money to fraudulent accounts.
• Fraud Prevention Alerts: Many banks have introduced enhanced alerts for customers when they initiate large or unusual transactions, prompting them to reconsider or verify the transaction.
• Reimbursement Schemes: Some banks have joined voluntary reimbursement schemes, where they refund victims of APP fraud, provided that the victim was not grossly negligent.

Legal and Regulatory Developments

In several jurisdictions, regulators have started taking action to curb the rise of APP fraud. For example, in the UK, the Payment Systems Regulator (PSR) introduced the Contingent Reimbursement Model Code in 2019, which encourages banks to refund customers who are victims of APP fraud, provided they took reasonable precautions.

However, the effectiveness of these measures varies, and in many cases, victims still face difficulties in getting their money back. As regulators and banks work to enhance fraud prevention, individuals and businesses must remain cautious and proactive in safeguarding their finances.

Conclusion

APP fraud represents a growing challenge in the digital payment landscape, exploiting trust and the speed of modern financial transactions. Awareness and vigilance are key to preventing this type of fraud, and banks are increasingly introducing tools to protect their customers. However, with fraudsters constantly evolving their tactics, both individuals and businesses must remain informed and cautious to avoid falling victim to these sophisticated schemes.

Author Sarita Sitaraman