New safeguards announced for payments

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EXTRA steps are being brought into the payments process in an effort to make transactions more secure for users.

samantha smith
By Samantha Smith

The Payments Strategy Forum say that two simple changes should help cut down on the number of payments made in error or to fraudsters, as well as helping users control their outgoings more effectively.

The first change, referred to as "confirmation of payee", will require us to confirm that we recognise the name associated with the account details we've entered.

The second, "request to pay", is designed to give us more control over regular payments such as direct debits, reflecting the shifting financial situation that many people now face.

The Forum say the changes should be fully implemented by 2020, but could be in place as soon as 2018.

'Assurance data'

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The first of the measures mentioned above is one of a number of steps intended to increase our confidence about making payments to others.

This "assurance data" will also include giving us an estimated time for a transaction's completion, and when a payment we've made has actually been received successfully.

It's the "confirmation of payee" that really has the potential to make payments much more secure, simply by matching up the sort code and account number with the name of the account holder.

The person making the payment will be asked if they mean to transfer funds to the named person or business before the transaction is finalised.

It's strange to think that this isn't a basic requirement already - after all, there's often a space for the recipient's name on the online transfer forms.

Indeed, in some countries, and when making international transactions, getting the name right is often crucial to the payment going through successfully.

But in the UK, the name isn't much more than an easy reference point for us, as the only information that the institutions take note of is the sort code and account number.

graphic showing how confirmation of payee works

SOURCE: Payment Strategy Forum

That makes it all too easy for us to send our money to a complete stranger by mistake - or become the victim of fraud.

"Confirmation of payee" should help crack down on the kind of fraud where victims are convinced that they need to change payment details or make a couple of payments to an account with different details.

Instead of just trusting that the account belongs to the person or business they think they're doing business with, they'll be told where their money is about to go - and if they don't like what they're told, they can back out before any damage is done.

'Request to pay'

The other big idea that the Forum have come up with is the "request to pay" system, in which companies taking regular payments from our accounts will need to seek our authorisation before they can take the money.

Automated payment methods such as the direct debit work brilliantly for the majority of us, and for the businesses that use them; they're predictable, efficient and cheap.

But for a significant and growing group of people they're far too inflexible to work well - those with low and variable incomes, who may be able to meet their bills if they can pay them on a different date every now and then, or by instalments rather than in one go.

The Payments Strategy Forum say that payment systems should "reflect and respond to real people's needs", including the "least financially capable wherever possible".

They recognise that there are issues with giving us the power to say no to a request for payment - from businesses having to deal with varying payment dates and the possibility of non payment some months, to customers building up increasing levels of debt if they keep deferring or make only part payments for more than a month or two.

But the Forum believe it's better than the existing system, whereby both customer and business not only miss out when a regular payment fails, but often incur extra costs as a result:

graphic showing how request to pay could work

SOURCE: Payment Strategy Forum

Roll on 2018

The reason we won't benefit from these changes [pdf] any sooner than 2018 is that behind the scenes they require a serious overhaul of the UK's payments systems.

Before the new steps can be introduced, the Payments Strategy Forum have recommended the consolidation of three existing systems, including BACS, the Faster Payments Service and the system used by the Cheque and Credit Clearing Company.

At the same time the financial services industry will need to start working together more to make sure the new procedures work properly.

Possibly the most important project they'll be collaborating on will be that to improve identity verification and authentication - to make sure that fraudsters can't simply set up accounts under the right names to fool the "confirmation of payee" system, for example.

But the Forum have also called on them to share more of their financial crime data, and to use that shared information to better analyse and identify fraudulent and criminal activity.

In the meantime, the responsibility for checking where a payment is going remains with us - whether making sure a friend has received the money we owed them, or being wary of unexpected requests for payment from apparently familiar companies.

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