Building the business case for Confirmation of Payee

Fraud and Financial Crime

Ed Adshead Grant

Ed Adshead-Grant

Oct 26, 2021

Lest you don’t believe that payment security innovation isn’t necessary, consider this payments nightmare straight out of the September 1 issue of The Guardian. It tells the story of a poor bloke who took out a £ 40,000 second mortgage with his partner. By mistake, he entered his son’s account number on the paperwork. The £40k went into his son’s account, and he wouldn’t give it back. In fact, an investigation showed that he spent it. And the mortgage company was unsupportive because from their perspective the payment was completed properly.

This perfectly illustrates the need for Confirmation of Payee (CoP). The CoP service allows the payer to check that the name on the account matches that of the account holder. If this differs, an alert will appear on the payments screen. It addresses the fastest-growing type of scam and with Authorised Push Payment (APP) fraud losses rising 5% year-on-year, to £479m in 2020 (UK Finance), it’s critical to add an extra layer of security to ensure payments are being sent to their intended recipients. CoP started with a UK government mandate in March 2020, opening the first phase of CoP implementation to UK banks that held a banking license. And a recently opened second phase has widened the pool to financial institutions (FIs) -- including credit unions, sovereign banks, and FIs using Head Office Collections Account (HOCAs).

So, what’s the result? “CoP has been live now for a year and a half, we're still seeing over 50% of those losses being funded by the individuals. So as a community, we're failing the vulnerable at the moment. We saw in the first phase about 20 banks signed up, 6 were mandated of the 396 that were in scope. So, there's a lot we can do to actually improve things,” said Bottomline Director of Business Development Clive Hodges.

A new phase (Phase 2) opened up to a new cohort of CoP entrants in July.  To help educate financial professionals, Bottomline convened a workshop moderated by Dr. Louise Beaumont panelled by experts across the industry, including, CoP service owners Pay.UK, Cashplus Bank, and Bottomline.

Here we’ve summarised the outcomes and key takeaways of the workshop that will define the reasons to focus on CoP and in turn build a business case for it within your organisation.

Mitigating losses

James Whittle, Director of Standards and Architecture at Pay.UK, explained that the APP fraud loss within the industry of £479m (reported by UK Finance 2020), should be enough in itself to convince people they need to be part of this journey and that this is a collective action problem. Whittle explains, “At Pay.UK we want to see as many people getting into CoP as possible because the bigger that universe, the more effective the CoP solution will be.”

So why then have so few banks implemented CoP?  Hodges explained that a lack of clarity on liability was the likely culprit, “Until we get absolute clarity on liability from the PSR (Payments Systems Regulator)  we have to wait for a FOS (Financial Ombudsman Service) test case to go through to establish where liability rests.”

Hodges provided an example from the cards industry, harkening back to when chips were introduced on cards.  He explained that liability for losses rested with whichever party lacked that chip. And emphasised that if there was the same clarity on liability with CoP then there may be a much higher uptake.  

Protecting reputation

As seen in the card example, CoP is relevant for protecting reputation. Richard Bastin, Chief Technology Officer at Cashplus, shared a recent personal experience of relatives paying birthday monies into his daughter’s accounts and asking about the additional alerts/notifications they received as they went through the payment journey. Bastin commented, “It does affect the reputation of the bank… It’s important that banks that want to provide high-quality, secure, safe services for their customers are part of this scheme, and that was just another reason why Cashplus Bank decided to join.”

A common thread running through the workshop was the important part that we all play as a responsible and accountable part of the payments ecosystem. “There is a strong business case for CoP and, as a result, the CoP service has grown quickly. The support from third-party providers is important in making sure more end-users can benefit from the service,” commented Whittle.

Competitive Advantage

“Yes, absolutely. Where customers can see that they're being asked, like I was by a relative, “Is it safe to make this payment?” they know we’re protecting their safety” said Bastin.

And fraudsters know banks that implement CoP make it harder for them to commit fraud – they’re more likely to focus on banks that don’t have it in place… and no bank wants to be known as the place that fraudsters go to create bank accounts.

Is CoP the right place to start your Open Banking journey?

The panel agreed that it was.

Bastin said, “I think if you're not already doing open banking, CoP is a good place to start. For Cashplus Bank, we were already operating in open banking. We have our own open banking end-points, with our focus on small business customers and helping them to make their lives more efficient.”

Hodges added, “In truth, any place with open banking is a good place to start. It helps to level up the banking industry with regards to what access you can have data to, what customer experience. The benefit of starting with CoP is because it's a standalone.”

Whittle highlighted, “I think open banking has proven many things; it enables agility, creativity and speeds up the pace of change.”

In conclusion, the consensus from the panel was that for CoP to truly succeed, collective action needs to be taken across the industry to combat APP fraud.

At present, Bastin remarked, “There's too many holes in the bucket. I think we need to get more banks and other institutions on board and more education for our customers.”

To find out how to do your part in stopping APP Fraud and start your CoP journey you can listen to the full workshop here.  

To see more about Confirmation of Payee in the news, check out these resources:


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Related topics

Confirmation Of Payee
Ed Adshead Grant

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Ed Adshead-Grant

Ed Adshead-Grant is an experienced Fintech expert in the Global Payments and Cash Management industry, driving secure business payment solutions in ACH, Card, SWIFT, Faster Payments, Blockchain, Cyber Fraud & Risk Management and more.
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