The APP fraud reimbursement regime has reshaped how payment firms approach fraud prevention, but it remains a significant challenge for firms, regulators, and consumers, putting greater pressure to prevent fraud before the losses occur.
The introduction of the UK's mandatory Authorised Push Payment (APP) fraud reimbursement regime in October 2024 fundamentally changed the economics of fraud prevention for payment firms. A recent independent evaluation by Frontier Economics, commissioned by the Payment Systems Regulator (PSR), provides one of the clearest pictures yet of how the reimbursement regime is affecting firms, fraud-prevention investment and the wider payments market.
The evaluation examined the impact of the APP scam reimbursement requirement introduced in October 2024 and the publication of APP fraud performance data. A key finding was that the reimbursement requirement strengthened incentives for payment service providers (PSPs) to invest in fraud prevention. PSPs reported introducing stronger fraud controls across both sending and receiving payments, with the largest reductions in fraud occurring among firms that previously experienced the highest fraud rates.
The policy is estimated to have increased PSP costs by £44m to £56m per year, due to fraud prevention, claims handling, dispute management, reporting and compliance. The evaluation concluded that the APP fraud policies have broadly achieved their short-term objectives by:
- Reducing APP fraud levels (down around 21%).
- Increasing reimbursement for victims (up from 54% to 65%).
- Strengthening incentives for PSPs to tackle fraud.
The Cost of Investing for Payment Firms
The APP reimbursement scheme requires payment service providers (PSPs) to reimburse eligible APP fraud victims up to £85,000 per claim, with liability shared between the sending and receiving PSP. The policy was designed to improve customer protection and create stronger incentives for firms to prevent fraud before losses occur. According to the review, the result has been a significant shift in how firms assess fraud risk. APP fraud is no longer simply an operational issue; it now has a direct impact on profitability through:
- Reimbursement payouts
- Fraud operations staffing costs
- Investigation and case management teams
- Compliance and reporting requirements
- Technology investment
- Customer dispute resolution activities
Frontier's evaluation found that PSP costs have increased overall as a result of the policy changes.
The Industry's Response: Invest Up Front
Faced with the prospect of bearing reimbursement costs, many firms chose to strengthen their fraud controls ahead of the scheme's implementation.
The Frontier review concluded that PSPs have significantly strengthened APP fraud controls since 2023 and identified the reimbursement requirement as a major driver of this activity.
This aligns closely with what many firms have experienced in practice. Prior to implementation, organisations accelerated investment in:
- Real-time transaction monitoring
- Behavioural analytics
- Payment risk scoring
- Mule account detection
- Customer authentication solutions
- Enhanced fraud operations teams
- Case investigation and workflow tools
The findings from the review show that the investment laid out by firms has largely been beneficial in relation to a reduction in fraud reimbursements and positive customer interactions.
The Technology Market in Benefiting
One of the most interesting findings from Frontier's work is the impact on the anti-fraud technology sector.
The report found that the reimbursement requirement has strengthened the commercial case for anti-fraud technology and has contributed to increased demand for fraud prevention solutions.
This shift has created a greater willingness among firms to invest in sophisticated capabilities such as:
- Artificial intelligence and machine learning models
- Customer behavioural profiling
- Device intelligence
- Network and link analysis
- Mule account detection technologies
- Real-time payment intervention tools
Are These Investments Working?
Perhaps the most encouraging finding from the evaluation is that fraud levels appear to be moving in the right direction.
Frontier found that the value of APP fraud has fallen since the reimbursement policy was introduced and concluded that the reimbursement requirement appears to have been a key driver behind that reduction.
The reimbursement regime appears to have created exactly the behaviour regulators hoped to encourage: firms investing more heavily in prevention rather than focusing solely on remediation.
How Effective Fraud Prevention Can Reduce Costs
While fraud prevention technologies require investment, the Frontier evaluation suggests there are opportunities for firms to offset those costs over time.
Reduced Reimbursement Payments
The most obvious saving comes from fewer successful APP frauds and therefore fewer reimbursement claims. Every prevented scam directly avoids future compensation costs.
Operational Efficiency
Firms deploying automated fraud monitoring and case management systems can reduce manual investigation effort, allowing fraud teams to focus on higher-risk cases.
Reduced Regulatory Scrutiny
Regulators, including the FCA, are increasingly interested in firms' APP fraud performance, fraud rates and control frameworks. Demonstrating effective fraud prevention may reduce the likelihood of intensive supervisory engagement.
Improved Customer Trust
The evaluation found that reimbursement has improved customer outcomes and confidence when fraud does occur. Firms that prevent fraud and handle claims effectively may benefit from stronger customer retention and brand trust.
The Challenge for Smaller PSPs
Despite these benefits, the transition has not been painless for every firm. Smaller PSPs, EMIs and specialist payment firms face a particular challenge. They often have fewer resources available for substantial technology programmes, yet remain exposed to reimbursement obligations. Concerns around the impact of the £85,000 cap on smaller firms were raised even before implementation.
“Respondents consistently suggested that the financial impact is more acute for smaller or growing PSPs. For these firms, reimbursement costs, fraud prevention investment and operational costs may represent a larger share of revenue and may be harder to absorb. Several stakeholders noted that APP fraud liability has therefore become more prominent in board-level and investor discussions.”
For these firms, targeted and risk-based investment in fraud controls is becoming increasingly important. Independent fraud reviews, risk assessments, fraud rule testing and ongoing monitoring can help organisations identify the most effective areas for investment.
The Bottom Line
Frontier Economics' evaluation highlights an important reality: the APP reimbursement regime has undoubtedly increased costs for payment firms, but it has also changed incentives across the market. Firms are investing more heavily in fraud prevention, technology providers are responding with new solutions, and fraud losses appear to be reducing.
The firms that can most effectively detect scams, identify mule activity and stop fraudulent payments before they leave the account are likely to be the firms that experience the lowest long-term reimbursement costs and achieve the greatest return on their anti-fraud investment.
Meet the expert
James Dodsworth, Senior Manager 
James has worked in financial crime compliance across a range of sectors and firms for over 20 years.
As a certified fraud investigator, James has experience in all three lines of defence: conducting investigations, designing and delivering fraud controls and risk assessments, as well as creating and reviewing policies and procedures.