The UK government has introduced new legislation granting banks the power to impose a three-day hold on payments deemed suspicious. This move, designed to bolster efforts to combat fraud, marks a shift from the existing requirement that payments be processed or rejected by the end of the next business day. The legislation aims to curb the rising financial toll of scams, which cost the UK a staggering £460 million in the past year alone.
In a statement about the new law, Economic Secretary to the Treasury, Tulip Siddiq, underscored the urgent need for stronger protection against fraudsters. “Hundreds of millions of pounds are lost to scammers each year, targeting vulnerable communities and ruining the lives of ordinary people. We need to protect these people better, which is why we are giving banks more time to investigate suspicious payments and break the criminal spell that scammers weave,” Siddiq said.
The extended time frame for investigating payments is expected to provide banks with a better chance of identifying fraudulent activity before it can impact consumers. However, the decision has sparked debate over its broader implications for everyday banking, particularly regarding delays in critical transactions like mortgage payments.
Jack Kerr, director at Appdome, warned of the potential disruption to users’ financial lives, particularly with essential payments. “This approach can severely disrupt the user experience, especially when it impacts essential payments like mortgages,” Kerr noted. He suggested that a more effective solution might lie in advancing fraud detection systems that can preemptively identify threats without the need for delays. According to Kerr, automated systems could reduce disruptions while providing an enhanced layer of protection.
The growing reliance on mobile banking apps also adds complexity to the issue. According to a YouGov survey, a third of Brits use mobile banking apps daily, making them especially vulnerable to fraud. “We are seeing increasing attacks on mobile banking apps, which makes their security even more crucial,” Kerr emphasized. His remarks highlight the need for financial institutions to prioritize robust fraud protection systems that work behind the scenes without creating delays for consumers.
Some experts argue that the new measures are insufficient to tackle the root causes of financial fraud. Mark Munson, Managing Director of payments at Moneyhub, critiqued the law as a “superficial” fix that addresses the symptoms rather than the cause of the problem. “The recent decision to grant banks the power to delay payments for up to four days reveals a critical flaw; banks are focused on slowing down payments rather than cutting off fraud at its source,” Munson said. He advocated for stronger Know Your Customer (KYC) regulations and cross-sector cooperation to prevent criminals from exploiting the financial system.
While the new legislation seeks to provide banks with additional tools to fight fraud, the debate surrounding its broader impact continues. For many, the question remains: can banks balance fraud prevention with the need for seamless, efficient financial services?