Australia aims to become fourth global market moving on fraud-reducing payee system

In an effort to clamp down on scams and reduce fat-finger errors, Australia will introduce a matching system across banks that confirms payee details ahead of a payment proceeding.

Lynn Kraus, Australian Payments Plus CEO, is confident in Australia’s approach after soliciting input from about 50 community groups and conducting a privacy impact assessment.

Australia is set to become the fourth global market to introduce a matching system across banks that confirms payee details ahead of a payment proceeding, in an attempt to clamp down on scams and reduce fat-finger errors.

The centralised system is being built and tested this year and will be introduced by banks and other financial institutions from early 2025. Initially about 90 per cent of personal and joint accounts in Australia will be included, while a date for a roll out for business accounts is yet to be determined.

“We’ll have 90 per cent of accounts in Australia that will be reachable. Obviously, part of the program of work that we’re doing as the NPP (New Payments Platform) continues to mature is to make sure that we can access 100 per cent of accounts,” said Lynn Kraus, chief executive of Australian Payments Plus.

Australian Payments Plus was formed after the merger of BPAY, eftpos and NPP, with the latter being the nation’s infrastructure for near real-time payments.

The new confirmation of payee service will operate as a traffic light system as it cross checks the account details, branch number and name entered before a payment is made. If the details match with those in the central system, that will facilitate a green light, while if the details are slightly different an amber light will suggest further investigation may be required. A red signal will warn the user the details don’t match and prompt them to double check the information.

Commonwealth Bank is among players already using their own payee confirmation system, as the industry works to develop a sector-wide solution for financial institutions.

“Not all banks yet have their own service. What we’re building in the centre is a consistent service that will be the same experience and look the same and feel the same,” Ms Kraus said.

Australia will join the Netherlands and UK which have already introduced their own respective versions of payee verification, while New Zealand has flagged it will roll out a confirmation of payee service by the end of 2024.

Australia is set to become the fourth global market to introduce a matching system across banks that confirms payee details ahead of a payment proceeding.

Much of the rationale for these initiatives revolves around combating scams and fraud.

The Australian Competition and Consumer Commission’s data has showed scams cost Australians $2.74bn last year with more than 601,000 reports made. That reflected an 18.5 per cent jump in scam reports compared to 2022, despite a drop in 2023 in the dollar figure lost.

While banks are taking steps to reduce the potential for fraud and scams to occur, the moves come against the backdrop of debate over whether customers or banks should be liable for losses incurred as sophisticated scammers target accounts.

The new payee matching system provides an additional layer of protection for an individual but does not factor into the liability debate.

After several years of payee verification operating in the Netherlands, Dutch banks reported an 81 per cent drop in fraudulent payments and a 67 per cent decline in misdirected payments.

In the UK, the results are less flattering with data showing a 2 per cent reduction in fraud in the first half of 2023, compared to the same period a year earlier.

CBA last week said its name checking technology prevented scam payments of more than $40m and stopped about $370m in mistaken payments in the year ended June 30.

Lynn Kraus, chief executive of Australian Payments Plus.

CBA’s technology is being used by other firms including Bendigo and Adelaide Bank.

A spokesman said Westpac’s payee confirmation technology had helped reduce scam numbers by 30 per cent.

Ms Kraus said she was confident in Australia’s approach after soliciting input from about 50 community groups and conducting a privacy impact assessment.

The matching system will apply to more than 80 Australian financial institutions across banks, building societies, credit unions, and mutual banks.

Australian Banking Association chief Anna Bligh said the nation’s banks were investing $100m in the new technology as part of the Scam-Safe Accord, which aimed to disrupt, detect and respond to scam activity.

“We are one step closer to having a new weapon in the war against scammers,” she added.

Australian Payments Plus said the matching system would not act as a central database with all account data remaining with the financial institution or service provider.

A decision is yet to be made as to when businesses will have access. Ms Kraus said she hoped businesses would be enabled not long after individuals.

Belgium-based financial messaging group SWIFT is building and managing the confirmation of payee central matching service, which will be rolled out in phases as financial institutions connect to and integrate the technology.