Adopting a network approach will be crucial for navigating complex PSR reimbursement risk in 2024

The Payment Systems Regulator (PSR) reimbursement initiative, due to come into force in October this year, has become a central concern for Banks and PSPs. Whether you’re a fintech firm, a traditional bank, or any other type of entity involved in the dynamic landscape of financial transactions, effectively managing the complexities of PSR reimbursement rules will become paramount. Put simply, it will no longer be enough to understand outgoing and incoming payments. Mitigating future risk and ensuring ongoing financial stability will require a network approach.

A network, or consortium, approach provides a 360-degree view of interconnected relationships and associated digital identities operating within the financial ecosystem. It acknowledges that managing reimbursement risk is not a solitary endeavour. Rather, it requires collective effort and intelligence exchange across the whole financial services industry, to be truly effective. The regulatory shift instigated by the PSR rules highlights a key limitation of existing outbound and inbound payment monitoring practices – that is, without the context of associated transactional account information from across the full payment journey, there is a limit to what can be ascertained. The key is to leverage the network effect.

Data diversity is a significant advantage of a networked model. Instead of relying solely on your organisation’s own customer and transactional information, a network approach allows for the aggregation of information across organisations – i.e. other banks and financial institutions in the payment ecosystem. Encompassing transaction histories, customer attributes, fraud trends and others, the more comprehensive the dataset, the more holistic an understanding of payment risk it is possible to achieve. Are the patterns of transactions associated with a particular beneficiary account expected or unusual? Are they normal or suspicious? Ultimately, it’s this level of insight that is needed, to help organisations to identify and assess their exposure to the reimbursement shift.

Real-time data sharing is another critical aspect of a networked approach. The rapid exchange of information within the network enables businesses to respond swiftly, because as we all know, fraudsters aim to move fraudulent funds through their mule network and cash out as quickly as possible. Agility is essential in an environment where fraudster behaviour and payment systems evolve rapidly. Anything other than a real-time response can severely limit the impact of mitigation.

Collaboration is the banking sector’s strongest defence against the onslaught of APP fraud. It facilitates shared insights and best practices. Banks learn from each other’s experiences and failures, adapt successful strategies and avoid future pitfalls. Collective knowledge enhances the overall risk management capabilities of the network – learning from every action and transaction – creating an environment conducive to continuous improvement. This is exactly what fraudsters do not want –effective, responsive and cooperative actions, shutting them out.

A change in the traditional commercial mindset is therefore also required. Banks must aspire to break down traditional industry silos and promote the free flow of information for the collective good of the sector and the best possible outcomes for customers. They must also equip themselves with the right tools for the job. Enterprise-level technology, such as LexisNexis ThreatMetrix, is a global contributory network of real-time transactional data shared amongst a consortia of organisations from banks and consumer finance, to retail and leisure. Members see and share known fraud risk and other relevant attributes across the entire network, leaving no place for fraudsters to hide.

PSR reimbursement risk demands a shift from individualistic approaches to a networked model. Part of the reason that fraud is so successful is because criminals rely on the ability to cross payment networks faster than individual banks can pursue them. By embracing collaboration, real-time data sharing, and technological interoperability, businesses in the financial sector can navigate the complexities of PSR reimbursement more effectively. The network approach not only mitigates risk but also positions businesses to adapt proactively to changes in the fraud landscape.

Rob Woods is Market Planning Director for Fraud & Identity (EMEA) at LexisNexis Risk Solutions

For more information about the impact of PSR regulations on your business watch this fireside chat Rob Woods and Innovate Finance.