Banks alarmed at calls for compensation for scams

Wednesday, 13 March 2024

Banks in New Zealand have been losing the public relations battle. Both the public and Commerce and Consumer Affairs Minister Andrew Bayly think they are not doing enough to protect customers from scams.

Bank executives have expressed alarm at the prospect of their employers having to pay compensation for their customers’ scam losses, KPMG says.

KPMG’s 2023 review of banks was published on Wednesday showing bank margins and profits rose again despite the hard times households faced.

But John Kensington, a partner at KPMG, which sells services to banks, said an anonymous survey of bankers revealed a significant increase in cyberattacks and scams.

The executives “noted with some alarm that in some quarters regulators and commentators feel that banks should bear the cost of any scam or fraud regardless of how the customer may have either acted or contributed”, Kensington said.

However, retired banker Janine Starks said that claim in the KPMG report was a gross mischaracterisation of the compensation that was being called for.

Retired banker Janine Starks has worked pro bono to help scam victims seek compensation through the Banking Ombudsman.

Starks said fraud victims were calling for a compensation system like that in the UK, where banks were liable for customers’ fraud losses unless customers had acted with gross negligence, such as ignoring bank warnings that they may be being scammed.

She said the tactics the bankers were using ”are just unbelievable“.

She said flaws in banking systems were exposing bank customers to a heightened risk of fraud, and forcing banks to pay compensation for fraud losses was the way to focus them on investing in adequate fraud protection.

Banks in Australia have acted quickly, and seen fraud levels fall.

The KPMG report came out the same day that a report in Australia showed the effect of banks stepping up their game on fraud protections.

A new report from Australia’s National Anti-Scam Centre showed overall scam losses in the December quarter were down by 43% compared to the same quarter a year earlier.

Australian banks have been quicker than their New Zealand subsidiaries to invest in scam prevention, and no data has been published here since the Ministry of Business, Innovation and Employment said in November that 11 banks and other large financial institutions had reported nearly $200 million of losses for their customers over a period of 12 months.

“Extra protections from banks are helping to ensure less Australians are losing money to the international criminal gangs who run many scams,” said Anna Bligh, chief executive of the Australian Banking Association.

Here, banks have been given an ultimatum by Andrew Bayly, Commerce and Consumer Affairs Minister, to improve both their fraud protections, and compensation for customers’ fraud losses by the end of the year.

If they do not, the Government could consider taking action, he warned.

New Zealand banks have been stung by mounting criticism of their ageing banking systems, and have pledged to introduce better fraud protection.

Banks have agreed to investigate a voluntary reimbursement scheme for customers who lose money in authorised payment scams, says Banking Association chief executive Roger Beaumont.

This includes investing in systems that can tell customers when the name and number of an account they are trying to send money to does not match, which can be a red flag of fraud. It also has the added benefit of reducing accidental payments into the wrong accounts.

ASB’s parent company, Commonwealth Bank of Australia, introduced a limited form of confirmation of payee in March last year, and said by November it had prevented more than 10,000 scam payments which would have totalled in excess of an estimated A$38 million (NZ$41m), and already reduced mistaken payments by more than A$100m.

Banking Association chief executive Roger Beaumont said “confirmation of payee will start to roll out by the end of the year, and our anti-scam centre is up and running, targeting money mules”.

“Banks will investigate a voluntary reimbursement scheme for customers who lose money in an authorised payment scam. That may help inform any changes to the Code of Banking Practice which sets out current customer expectations for fraud reimbursement.”

Polling by Horizon Research shows most people believe banks are not doing enough to protect customers from scams, and should compensate for scam losses.

KPMG reported that bank executives recognised that rising fraud losses were hurting their reputation.

However, KPMG said bank executives claimed making banks liable for more compensation would result in “reduced vigilance” by customers, and that would lead to an incentive for criminals to “try harder”.

The executives also appeared to signal that banks might be willing to heed Bayly’s call, if it included sharing losses with customers.

“Survey participants believed that this was an area where a degree of joint responsibility exists,” KPMG reported.