How to Prevent Push Payment Fraud

Push payment fraud, also known as authorised push payment (APP) fraud, is one of the most damaging forms of financial crime facing businesses today. It occurs when fraudsters trick individuals or organisations into sending money directly into their accounts under false pretences. Because these payments are willingly authorised by the victim, they are often harder to detect and even harder to reverse. Recognising how these schemes work is the first step towards building stronger safeguards and protecting your business from unnecessary financial loss.

Understanding APP Fraud

Introduction to APP Fraud

Authorised push payment (APP) fraud is a type of deceit where victims are convinced to transfer money to fraudsters, typically using real-time payment systems that are instant and irreversible. Because the victim authorises the payment, it becomes difficult for financial institutions to detect or prevent the fraud. Understanding how APP fraud operates can help you implement effective payment risk management strategies to safeguard your business.The real-time element of these transactions makes them particularly challenging to counter, as the funds are transferred quickly and cannot be retrieved once authorised by the victim.

Tactics Used in APP Fraud

Fraudsters employ various tactics in APP fraud, primarily focusing on social engineering and impersonation techniques. These methods involve manipulating their targets into authorising payments by misrepresenting their identity, creating a sense of urgency, and exploiting the victim's sympathies or fears. By understanding these tactics, you can better educate your staff and customers to recognise and avoid such schemes.

Common tactics include:

• Impersonation: Fraudsters often masquerade as officials from trusted organisations such as banks, utility companies, or government agencies.
• Urgency: By creating a sense of urgency, fraudsters pressure victims into making hasty decisions.
• Fear: Inducing fear through threats of financial loss, legal repercussions, or urgent family situations.
• Sympathy: Taking advantage of emotions by posing as someone in distress or needing immediate financial assistance.

For a deeper dive into these tactics and how to counter them, visit our detailed article on app frauds.

Knowing these tactics and regularly updating your knowledge on fraud trends can significantly reduce the risk of APP fraud affecting your business. For more ways to protect against payment fraud, explore our resources on payment fraud detection and fraud prevention software.

Types of APP Scams

Authorised Push Payment (APP) scams involve various strategies to deceive victims into making payments. Here, we explore prevalent types of APP scams affecting businesses.

Invoice Scam

In an invoice scam, fraudsters manipulate or fabricate invoices to trick businesses into making payments to their account. These scams often involve impersonating a supplier or service provider. The invoice may look legitimate, making it difficult to spot the fraud.

Common indicators include an unexpected change in account details or urgent payment requests.

Romance Scam

Romance scams exploit emotional trust, often targeting individuals on dating platforms. The scammer builds a relationship and eventually asks for money, citing an emergency or travel expenses. Despite its personal nature, businesses should be aware as employees can fall victim during working hours, leading to potential financial and reputational risks.

Property Funds Scam

Property funds scams involve fraudsters posing as property sellers, real estate agents, or lawyers to intercept large transactions from buyers. They ask for down payments or fees to be transferred to their accounts, leaving the victims out of a significant amount. Businesses in the real estate sector or those engaging in large property transactions must be vigilant.

Account Takeover Fraud

Account takeover fraud occurs when a fraudster gains access to a business's financial accounts. This access is typically obtained through phishing attacks or hacking. Once inside, the fraudster can authorise payments to themselves or extract sensitive information.

It's important to implement robust payment risk management strategies to detect and prevent these scams. Regular training on recognizing fraud, using technologies like multi-factor authentication and KYC checks, and maintaining secure communication channels are essential. For more details, check out best practices for preventing bank fraud.

Understanding the tactics and potential indicators of these scams is crucial for protecting your business from financial losses and maintaining customer trust. For additional information on handling fraud incidents, refer to what to do if you've been scammed online and explore fraud prevention software to bolster your defenses.

Prevention Strategies

To effectively combat push payment fraud, businesses need to implement a range of strategies. These include educating customers, monitoring transactions, implementing Know Your Customer (KYC) checks, and conducting identity verification.

Educating Customers

A key component of preventing authorised push payment (APP) fraud is educating customers. Fraudsters use various tactics to deceive individuals into making payments to fake accounts. By raising awareness about different types of scams, such as invoice scams and romance scams, businesses can prepare customers to recognise and avoid these fraudulent activities.

Education Tactics:

• Provide resources on identifying fraud
• Conduct regular workshops and webinars
• Send out informational newsletters
• Offer guidelines on secure online banking (secure online banking)

Transaction Monitoring

Transaction monitoring is essential for detecting anomalies that may indicate fraud. By keeping a close eye on transaction patterns, businesses can identify unusual activities and take immediate action to prevent potential fraud.

Monitoring Strategies:

• Utilise AI-driven software to detect unusual patterns
• Establish thresholds for transaction amounts
• Implement alerts for large or suspicious transactions
• Regularly update monitoring algorithms to adapt to new fraud tactics

Example of Monitoring Alerts:

Implementing KYC Checks

Know Your Customer (KYC) checks are vital for verifying the identity of customers and ensuring the legitimacy of transactions. By being thorough in confirming the identities of payees, businesses can reduce the risk of payment fraud.

KYC Measures:

• Collect comprehensive customer information (name, address, phone number)
• Verify identity documents (passport, driver's license)
• Use biometric verification methods
• Implement continual KYC procedures to update customer information

Identity Verification

Identity verification is crucial for preventing account takeover fraud and other forms of APP fraud. By using advanced verification techniques, businesses can ensure that the person making the transaction is indeed the legitimate account holder.

Verification Techniques:

• Multi-layered authentication processes (multi-factor authentication)
• Biometric verification (fingerprint, facial recognition)
• Using AI to detect inconsistencies in user behavior patterns
• Implementing the Confirmation of Payee (CoP) service to verify payment destinations

For more on how to protect against fraud, explore our articles on payment fraud detection, know your customer, and identity theft.

Impact of APP Fraud

Financial Losses

Push payment fraud can have severe financial repercussions for your business. Victims of APP fraud also often lose confidence in their payment service providers, which can result in significant losses of business and market credibility. The FBI underscores that maintaining trust is critical as scammers often impersonate banks or businesses to perpetrate these frauds. Maintaining robust communication channels for swift resolution of claims is essential.

Regulatory Repercussions

Compliance costs resulting from APP fraud regulations can also impact your business. Starting 7 October 2024, all UK payment service providers (PSPs) using Faster Payments and CHAPS are required by the Payment Systems Regulator (PSR) to reimburse victims of authorised push payment (APP) fraud — unless the customer acted with gross negligence. The reimbursement must be provided within five working days, though PSPs can "stop the clock" during investigations, which must still conclude within 35 business days. For most consumers, the maximum reimbursement cap is set at £85,000, and the cost is split 50/50 between the sending and receiving PSPs (Thomson Reuters).

This regulatory requirement necessitates that businesses implement rigorous payment risk management practices to prevent fraud and ensure compliance.

Customer Trust Issues

APP fraud can significantly damage customer trust. Customers may lose faith in your business's ability to protect their personal and financial information.

To safeguard customer trust:

• Implement robust identity verification
• Educate customers about common scams
• Employ multi-factor authentication
• Ensure compliance with PCI DSS standards

By addressing these key areas, your business can enhance its defense against push payment fraud and maintain customer trust. For further strategies, explore our payment fraud detection resources.