Over the last decade, the digitalisation of banking has opened up a new frontier—not just for customers but for fraudsters too. As financial crime evolves, governments, financial institutions, and Big Techs have all been making steps to implement the most robust preventative measures. However, are they doing enough? Are digital banks overwhelmed by the challenge of keeping their customers’ money safe?
As digital banks continue to attract the masses, their responsibility to protect customer funds has never been more critical. It is easy to push innovative products and slick user interfaces, but what good is shiny innovation without robust fraud prevention? Without this, banks face the inevitable fallout: regulatory fines, customer mistrust, and dwindling retention rates.
In fact, it was only recently that Starling was fined £29m for ‘lax’ financial crime controls. Revolut did not fare much better, with BBC Panorama exposing its failure to adequately reimburse and protect its customers from fraud. This bad press comes just months after Revolut secured a UK banking license, albeit with restrictions. Neither outcome is a good look for the fintechs, operating in a market where high regulatory standards are a given.
In response to the rapid rise in fraud, the UK government and Financial Conduct Authority have recently implemented a new regulatory intervention, the UK Treasury’s payments delay plan, and are calling—along with the Payment Systems Regulator (PSR)—for enhanced reimbursement rules.
After reviewing the maximum compensation cap, initially set at £415,000, the PSR reduced it to £85,000 in September 2024 to ease the burden on smaller providers. This adjustment is meant to help smaller players cover fraud losses without collapsing under the pressure.
GlobalData 2024 Financial Consumer Survey
Compared to other nations, the UK has fared better overall in combating fraud. According to GlobalData’s 2024 Financial Consumer Survey, the UK’s fraud rate stands at 11%, lower than the global average. However, this does not mean the country is immune to emerging threats. One area of growing concern is Authorised Push Payment (APP) fraud, which fintechs claim mostly originates from social media including Meta and TikTok.
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By GlobalDataThis inevitably has led to friction between financial institutions and Big Techs, with banks such as Revolut being one of a few that recently called for Meta to take greater responsibility in reimbursing customers who have fallen victim to financial fraud on their platforms.
While Big Tech certainly has a role to play, digital banks must not deflect from their primary responsibility: safeguarding their customers’ money. Yes, APP fraud presents complex challenges, but the onus remains on digital banks to ensure robust cybersecurity measures are in place. The rise of APP fraud highlights how fragile the security systems of some fintechs remain. The recent regulatory adjustments by the PSR and UK government offer smaller providers fewer excuses; improvements must be made by fintechs to close security gaps.
If digital banks want to maintain trust and grow in this competitive market, they need to prioritise cybersecurity, invest in cutting-edge fraud detection systems, and partner with regulators to stay ahead. Otherwise, they will not only continue to face regulatory penalties and bad press but also risk losing their most valuable asset: their customers’ confidence.
Phoebe Hodgson is a banking and payments analyst at GlobalData
