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The top three predictions from Lynx’s experts on how the PSR’s APPF reimbursement requirements will impact payment providers and financial crime.
Authorised Push Payment Fraud (APPF) continues to be a significant problem for consumers and financial institutions in the UK. The Payment Systems Regulator’s (PSR) latest data shows that in 2023 victims reported 252,626 APPF cases costing almost £341M.
The good news: there have been some improvements in APPF prevention and response since 2022. The value of APPF losses is 12% lower and reimbursement rates among Payment Service Providers (PSPs) and Financial Institutions (FIs) are higher overall.
The bad news: the volume of APPF scams is 12% higher than in 2022 and reimbursements vary significantly across payment providers. The data also shows that inbound APPF prevention (received payments) significantly lags behind outbound APPF prevention (sent payments) in most institutions.
Starting on October 7, 2024, the PSR is enforcing new APPF reimbursement rules for PSPs using the Faster Payments Service (FPS). These regulatory changes seek to curb APPF and reimburse more victims.
The rules state that APPF reimbursement will be split 50/50 between sending and receiving PSPs. There is a £85,000 maximum reimbursement per claim, a 5 business day reimbursement window and a set of reporting requirements (for a full review of the regulatory changes, read Lynx’s fact sheet here).
Several important questions arise from these new rules. How will the financial services industry adapt? How will consumers be impacted? What are the implications for preventing fraud, identifying money mules, and stopping money laundering?
Here are the top three predictions from Lynx’s team of fraud prevention and anti-money laundering experts.
Dan Mcloughlin, Head of Pre-Sales, UK
The high reimbursement maximum will introduce a substantial financial burden for PSPs and FIs. The PSR is signaling that these institutions must prevent the flow of fraudulent transactions or be prepared to face higher reimbursement costs. This should drive investments in stronger fraud prevention technologies and strategies, particularly those that allow real-time detection and intervention. PSPs and FIs that fail to adapt will face higher fraud losses and claims, more false positives, and reputational damage, not to mention more attacks from criminals who see an opportunity to target weaker systems.
Alyssa Iyer, Head of Product – AML
As FIs and PSPs focus more resources on money mules and inbound APPF, there is an opportunity to bridge gaps between traditionally siloed Fraud Prevention and AML teams to prevent more financial crime. At a high level, these two groups share a goal: identifying, stopping, and reporting criminal transactions with greater precision and speed to protect consumers and businesses. When it comes to stopping money mules, the overlap is more tangible. Money mules launder fraudulently obtained funds, so both Fraud Prevention and AML teams are needed to stop mules.
Greg Hancell, Head of Product – Fraud
The PSR’s new rules define a new reality for payment providers. These institutions need to comprehensively monitor all inbound and outbound transactions to detect and stop APPF and mule accounts in real time without preventing legitimate transactions. This is only possible with adaptive and flexible technology given ever-changing criminal tactics, shifting user behaviours, and emerging digital payment methods.
In today’s transaction environment, rules-based fraud prevention alone isn’t enough. Rules must be paired with AI and machine learning (ML) models which can capture complex fraud and money muling behavioural patterns.
Lynx has the technology to help FIs and PSPs meet the PSR’s new requirements, uncover more mules, and unify fraud prevention and AML efforts.
Lynx Mule Account Detection empowers payment providers with a 360-degree view of incoming and outgoing money mule transactions. The solution is powered by Daily Adaptive Models, supervised ML models that are retrained daily to identify fraudulent funds and mule accounts in real-time with the highest accuracy and lowest false positives. Adaptive and extensible payloads are enabled thanks to Lynx Flex, which allows PSPs and FIs to configure API and intelligence feeds in a user interface and propagate changes to models, rules and reports.
Here’s how Lynx Money Mule Account Detection works. The solution reviews incoming transactions in real-time, applies a risk score based on the likelihood of a transaction’s association with illicit funds, automatically flags and blocks mule accounts, and generates alerts for Fraud and AML teams. A unique mule score provides immediate value with proactive and dynamic data enabling faster decision-making by Fraud and AML teams. Additionally, this upstream service provides more actionable insight and confidence to transaction monitoring teams, further enhancing seamless decision-making and increasing process automation and operational efficiencies.
Lynx Money Mule Detection isn’t just a mule prevention solution: it also enables real-time AML monitoring. When money muling is identified, an immediate alert is sent to the Fraud Prevention and AML teams. This provides integrated threat intelligence to detect mules, stop fraud, and flag suspicious money laundering activity. Lynx’s solution helps payment providers stop fraudulent funds from entering and or leaving the institution, reduces false positives and operational costs, protects consumers and businesses, and defunds crime to disrupt the criminal cycle.
Lynx Money Mule Detection is available as a standalone solution or may be used in conjunction with Lynx Fraud Prevention to accurately identify fraud and money mules in outgoing and incoming transactions. To learn more, read the Lynx Money Mule Detection Guide.
Lynx prevents £1.6 billion in fraud per year (rolling 12-month period). Interested to learn more? Reach out to request a demo or a proof of concept today.
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