The introduction of near-real-time payments in the UK, USA, EU and Australia has seen a sharp rise in authorised push payment (APP) fraud. APP fraud involves a deception in which the fraudster convinces an individual to make a payment under false pretences, typically by sending a convincing but fraudulent invoice or by diverting payment away from the legitimate service provider. Because payments are near-real-time, it is usually too late to reverse the payment once the individual realises they have been duped. And with property transactions being targeted by some of the more devious fraudsters, the sums of money involved can be very large.
And with the rise, there is increasing pressure on regulators and the banking sector to provide better protection from this type of fraud and to compensate the victims. In the UK, where the FPS real-time payment system has been operating for some years, in the first six months of 2017, over 19,000 APP scams were perpetrated involving over £100 million. In 2016, the UK Financial Conduct Authority (FCA) reported that providers of payment services were side-stepping the issue of reimbursing the victims of APP fraud and needed to be brought in line with best practice in other sectors of the industry. This poses a major headache for the banks.
But APP fraud prevention isn’t straightforward with conventional payment schemes. The problem is that the authentication commonly used in electronic payments focuses on validating the payer’s identity, but the payer’s identity and approval aren’t the issue. APP fraud is, however, a non-issue with any push payments built on Bluechain technology. That’s because the identities of both the payer and the payee are validated and bound into the transaction data. Fraudsters might be able to dupe a person into authorising payment, but there’s no way they can fool the Bluechain payment processor about who requested the payment nor where the payment is to be sent.
Instead of getting preoccupied with reimbursement and loading even more cost onto users (as has been done for decades with card fraud), the industry needs to focus on using the right technology to fix the problem of fraud (in all its forms) at its root.