Tomorrow lenders are expected to announce their decision. It was originally thought that they would agree to pay a flat fee on transfers to fund a countrywide reimbursement “pot” – yet Telegraph Money understands that a rebellion among Britain’s challenger banks may mean that the proposal is thrown out.
So what is causing the split and what will it mean for victims?
‘We’re better at protecting customers against fraud’
Digital banks such as Monzo are concerned that a general levy to cover the cost of all reimbursements will unfairly penalise lenders that are better at fighting fraud. Speaking on the Fintech Insider podcast Monzo’s chief executive Tom Blomfield said that its fraud rates are around five times lower than the industry average because it had invested in better technology.
He added that for bigger banks the 2.9p levy on payments would be a tiny cost of doing business, yet it would be “absolutely game-changing” for firms such as his.
Mr Blomfield compared the situation to that of factories aiming to collectively fight pollution. “You’ve got nine old factories that are all pumping pollution into the river and then you’ve got a new technology-enabled factory that is actually much less polluting,” he said. “And the whole industry says, ‘Well to clean up this pollution we’re going to have to put a levy on everyone.’”
Even if a bank reduces its fraud to zero, he added, in the same scenario it would only reduce the whole pool by 10pc – “and you’re still going to be funding everyone else’s pollution”. Insiders told Telegraph Money that three other banks had opposed the levy.
What is the alternative?
If the levy plans are scrapped, banks are likely to announce that they will self-fund compensation for fraud victims instead. This is the model already adopted by TSB, a bank launched in 2013.
Banking experts have said that the self-funding model provides much more incentive for banks to improve their internal fraud systems. Under the current proposals, scam victims considered to be ‘grossly negligent’ will not receive any reimbursement. Some banks are keen to adopt self-funding models, like TSB, which provide reimbursement to all innocent victims without taking gross negligence into account. This could mean that if they were forced to adopt the levy model, the level of protection offered would actually be lower.
The issues with self-funding
If banks agree to self-fund – rather than victims being compensated from a general pot – the commitment is likely to be voluntary. There will also be no required start date for them to begin reimbursements, in contrast to the mandatory levy plans.
This comes as victims continue to lose life-changing sums to scammers. The latest figures from trade body UK Finance show that over the first half of 2019, around 60,000 people were tricked into transferring money to criminals, losing on average almost £4,000 each.
Neena Bhati of consumer group Which? said that time was running out to ensure blameless victims are not at risk of losing their life savings. Which? launched a super complaint about how banks deal with fraud victims back in 2016 which sparked the consultation on reimbursements. It supports the introduction of a payment levy.
“If the proposal is rejected it is crucial that the industry has an alternative solution ready,” she said. Ms Bhati added that the code on reimbursements, which is currently voluntary, should be made mandatory for all banks.