Instant Payments, Fraud, and Optimal Consumer Protection (Bank of Canada Research)

Summary

• UK Finance reports £459.7 million of APP fraud losses across 232,429 cases in 2023, roughly 0.017% of GDP.p.3
• The Payment Systems Regulator reports about £341 million of APP scam losses on Faster Payments alone in 2023.p.3
• In Brazil, scam and fraud losses on Pix were estimated around R$ 4.9 billion in 2024, about 0.04% of GDP.p.3
• In the UK, sending and receiving providers split reimbursement 50/50, capped at £85,000 per claim.p.4
• Real-time payments compress the detection window, increasing fraud risk.p.2
• With access and cap mandates, centralized fraud governance dominates; without them, decentralization can yield higher welfare.p.2
• A 50/50 liability split is optimal only when the adjusted curvatures of sender and receiver prevention technologies are equal.p.23

Key insights

1. FedNow, RTP, Faster Payments, Pix, SEPA Instant and Canada's Real-Time Rail settle payments in seconds on a 24/7/365 basis.p.3
2. APP scams, where a payer is manipulated into sending funds to a fraudster, are a leading fraud type on instant-payment rails.p.3
3. UK APP fraud losses of £459.7 million in 2023 were roughly 0.017% of GDP.p.3
4. A simple liability split between sending and receiving banks generally does not implement the planner's first-best allocation.p.5
5. Optimal liability is loaded toward the side whose prevention margin is more flexible.p.23
6. Liability becomes sender-heavy when receiver-side monitoring is sufficiently less flexible than sender-side screening.p.2
7. A flat usage fee induces a band of users and can exclude low-value payments, even under centralized governance.p.15
8. Liability rules, access pricing and eligibility caps are complements in the design of instant payment rails.p.6