New fraud rules risk a ‘flight of e-money’ firms from UK, payments chief warns
Tony Craddock, director general of the Payments Association, warned that “overzealous” regulations could bump up costs for payment firms and cause a “flight of e-money firms” from the UK.
Speaking to Morning Wire Craddock warned that a series of “well intended but misguided sets of regulations” risked eroding the City’s status as a leading hub of innovative payments.
Craddock highlighted new fraud rules, due to come into force next year which will enable consumers to receive full reimbursement for fraud. Craddock warned this would do more harm than good.
“We call this (regulation) the 100 per cent Money-Back Guarantee fraud. And what that does is it promotes the wrong sort of behaviour. First of all it reduces people’s individual sense of responsibility. And secondly, it encourages first party fraud,” he said.
Both these, he says, would prompt the level of fraud to rise from its already sky-high levels. Authorised push payment (APP) fraud, when a customer is tricked into authorising a payment to an account controlled by a criminal, reached a yearly total of £485.2m in 2022.
The cost of reimbursement will be split equally between sender and receiver, which the Payment Systems Regulator (PSR) hopes will encourage both to take preventative action.
But Craddock said the added costs would be particularly harmful for smaller players in the market, like e-money firms, who already face very tight margins and often serve vulnerable groups.
Higher costs would either force e-money firms to raise prices or to leave the country.
“We are genuinely concerned that this will result in a flight of e-money issuers from the UK,” he said.
A spokesperson from the PSR said: “We’re confident our reimbursement requirements will drive the right consumer outcomes while encouraging people to still remain cautious – including through the potential for financial firms to apply a claim excess and introducing a maximum level of reimbursement.”
Craddock also took aim at the Financial Conduct Authority (FCA) and its “overzealous and over-assertive” approach to regulation.
In particular, he warned that the FCA’s new Consumer Duty, which aims to ensure firms deliver good outcomes for consumers on the quality and price of products and services, will add an extra layer of bureaucracy for payments firms.
“The FCA is going to make it much much harder to become licensed. And once you’re licensed, much harder to operate an effective, payment institution, e-money institution, or challenger bank, because the requirements essentially add a layer of cost, which has an impact on a layer of bureaucracy,” he said.
An FCA spokesperson said: “We continue to take action to raise standards in the payments and e-money sector. This includes engagement with payments and e-money CEOs to highlight our concerns about the lack of proper controls and unacceptable risk some firms pose to the market and consumers.”
The Payments Association has been attempting to make its voice heard among politicians ahead of an election next year.
Earlier this month the group published the ‘payments manifesto’, bringing together a set of policies which it hopes will spur the next stage of the payments industry in the UK. Representatives from the group attended both party conferences in attempt to push the payments agenda.
Craddock claimed the policies “went down better with the Labour party” than the Conservatives, suggesting in his view that Labour understood the impact on disadvantaged people.