Bank payment warning: Confirmation of Payee ‘not foolproof’ – action on fraud needed

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Confirmation of Payee rules were introduced in 2020 in a bid to give customers (both personal and business) greater assurance and protection over their financial payments. The new procedures introduced aimed to make sure payments reached the intended recipient, helping to ensure accidental or misdirected payments do not reach the wrong account holder.

Anthony Evans, a Director and Consultant at Non Functional Testing, explained CoP in layman’s terms: “When you make Bank payments, you give the Sort Code and Account Number – that determines where the money goes.

“Many users might be surprised to know that until recently the account name is not verified – so you could accidentally (‘fat fingers’) or otherwise (victim of fraud) be sending money to completely the wrong account.

“That is now changing with the ‘Confirmation of Payee’ (CoP) service recently launched by the main six UK Banks, in which you are requested to also give the Account name.

“If the name matches what the Bank has on record the payment goes through. If not, then you will be either asked to try again, or the payment may be rejected.”

Anthony went on to explain that the purpose for CoP was to reduce the risk of “Push Payment Fraud”, in which a payer could be prompted by a fraudster to send money to an incorrect account.

The new rules were originally designed with the UK’s biggest banking groups in mind but more financial organisations are also voluntarily signing up to the procedures, with Starling bank and Modulr taking action in late 2020.

Nigel Verdon, the co-founder and CEO of Railsbank, welcomed the introductions but noted additional work may be needed: ” As a loud voice within the financial services industry, Railsbank welcomes Confirmation of Payee (CoP) as a step in the right direction in the continual fight against online payment fraud.

“However, it is a small step, and so much more needs to be done to resolve an industry wide issue, one which affects so many people on a daily basis.

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“The industry needs to act collectively and decisively, including to share data so that fraud can be prevented and the individual bank account holder protected.

“The fact that the account name is now checked alongside the sort code and account number is a breakthrough, although arguably one which should have been brought about much earlier, but as welcome as CoP is, the initiative has challenges that can’t be ignored.

“Questions over scalability and complexity are readily admitted, but collaboration within the industry, a community-based approach, can mitigate this.”

Nigel went on to call for the industry to work together to better tackle fraud problems: “Now is the time for the industry to unite, to collaborate in sharing data to fight fraud in financial services.

“To create a collective defence and not to work in isolation.

“Railsbank believes the answer is not just co-ordinated action, but with advanced technology that has the ability to fully solve the issue of online payment fraud.

“This is where we focus our efforts and as an industry, we need to move in this direction and quickly.”

It was pointed out by Anthony that the public reaction to CoP has been “overwhelmingly positive” which could entice early action, given that banks are likely to have a competitive advantage if they fully embrace adaptations.

Anthony also noted banks and financial institutions who use the older style verification rules could be more at risk.

He explained that banks who have implemented CoP have so far reported a significant reduction in fraudulent payments, with evidence emerging of fraudsters turning away from banks with CoP and instead targeting firms who are not up to date.

Anthony concluded with his own views on whether CoP offers enough protection from fraud: “It’s not foolproof, but it really helps. Fraudsters could of course create accounts with similar names in their ‘spoof’ accounts – ‘Grab It and Run Solicitors’ for example.

“However, that can be quite a lot of work, and fraudsters usually prefer an easier way so are deterred.”

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