Mandatory reimbursement for victims of authorised push payment (APP) scams came into full effect under the Payments System Regulator (PSR) at the end of last year.
The new PSR rules mean that the reimbursements to victims will occur within five business days and will be split 50:50 between the sending and receiving banks. This has upped the pressure on banks to ensure they are avoiding failing victims of fraud in any way.
We spoke with Gilbert Verdian, CEO of Quant, who has proposed the argument that a system built around CBDCs would allow for fraud to be dealt with in a more effective way than in the current system.
“Fraud happens very quickly and the system we have in place can only deal with fraud after it happens. It’s always reactive, we’re always catching up and we’re throwing billions at it,” Verdian explains.
UK Finance found in its Half Year Fraud Update that fraud fell in the first six months of 2023, being 2% less than the same period in 2022. However, this was still £580 million being stolen, of which £239.3 million was attributed to APP scams.
Yet Verdian proposes the new system would give banks a better view to control fraud, he explains: “The issue is the view that banks have is only what happens within the money that comes in and the money goes out from within the demarcated perimeter. That's the only thing that can see. But when you step back, and you look at the whole aspect of fraud, you see these patterns, you see these trends, you see these anomalies, they can easily identify as fraud, and you can actually tackle it properly.”
Quant worked with the Bank of England and BIS on Project Rosiland. Verdian states that Quant built the “whole infrastructure” around the digital pound and issued it on their tech before opening it up to payment service providers to integrate, including Barclays, Mastercard, Revolut, and Worldpay. Project Rosalind concluded in June 2023.
Verdian argues that the answer to the question ‘why CBDCs’ comes down to “the ability to code logic” into the money itself. For Verdian this is a smart lock system, similar to programmable payments. This allows parties to unlock money only when certain criteria are met. This could be fraud checks, allowing the payer to protect themselves before their money is gone.
While the benefits of CBDCs to fraud seem clear, it may not be obvious why we have to make the move to CBDCs. Many of the things being discussed here could be possible within the current banking system, with the added benefit of not having to overhaul our existing infrastructure. Additionally, like in all cases of new technology, fraudsters will always find a way to develop new ways of committing crimes.
However, Verdian had a response for this which is that the current system is just not fit for purpose in a digital world.
“The system needs overhauling because it's no longer fit for purpose for a very digital society. So what we've got today is a legacy architecture that was designed 30 years ago. What we need is a next-generation system that can grow as we grow, but it can also meet the demands of the marketplace today. Yes, there is always going to be fraud and there is going to be malicious actors trying to bypass controls, but for the first time we've got a new tool up our sleeve because we've never had this before.”
Learn more about payments at NextGen Nordics on the 23 April 2024.