Product guide: Everything you need to know about Confirmation of Payee

Modulr By Modulr on 1 September 2020   •   8 mins read
<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >Product guide: Everything you need to know about Confirmation of Payee</span>

Learn how Modulr's new Confirmation of Payee tool helps to reduce the risk of fraud - protecting your business, your money and your customers. All from one powerful platform.

Product summary at a glance

What is Confirmation of Payee?

Confirmation of Payee (CoP) is a service that checks account names match up to their correspondent account numbers and sort codes, giving users greater assurance that they’re sending payments to a legitimate account.

How do I use Confirmation of Payee?

A user, either a business customer of Modulr or one of their end users,  wants to make a payment. They call Modulr's API with the borrower's account name, account number and sort code.  The system automatically checks the recipient's account name against the details held by their bank. 

Why can Modulr provide Confirmation of Payee?

Modulr has worked closely with Pay.UK to launch its Confirmation of Payee solution. Modulr is the first non-bank to do so.

What are the benefits of Confirmation of Payee?

For businesses, the benefits include:  
✔️ Reduced risk of fraud
✔️ Less financial losses 
✔️ Less time investigating fraud
✔️ Better customer experience

 Payment fraud is costing the UK economy 

Across the UK, millions of consumers and businesses fall victim to fraud every year. A significant proportion of these crimes is categorised as Authorised Push Payment (APP) Fraud. This is when a person is tricked into authorising a payment to a criminal’s account, through social engineering or other means of manipulation.

In 2019, consumers lost approximately £317m to APP fraud, up 39% from the previous year.[i] The average amount lost in each incident was £2,760.[ii] While some victims are able to bounce back from the consequences of fraud, for others the financial impact can be long-term or even life-changing.  

APP fraud is also a significant problem for UK businesses, which lost approximately £140m in 2019, with an average case value of £18,000.[iii] And the impact of fraud on businesses can go beyond financial losses – damaging relationships between companies, suppliers and partners and eroding customer confidence.

Why is Authorised Push Payment fraud on the rise? 

Technological change is accelerating and regulations have struggled to keep up. A growing number of consumers and businesses are now taking advantage of methods like Faster Payments. While these new forms of payment offer a wide range of benefits, users need to be wary of making mistakes as funds are transferred instantly and often irrevocably.

When these payments are processed, only the account number and sort code are matched when processing any kind of payment – there’s no safeguard to ensure that account names match up with account numbers. And if a consumer or business is tricked into making a payment to the wrong account, there’s no guarantee of reimbursement.

The danger of APP fraud has been exacerbated by the rise of social media, which makes it easier than ever for criminals to do recon on their victims and perform convincing impersonation scams. Times of crisis like COVID-19 provide even more opportunities for fraudsters, with the sudden and widespread transition to home working.

What is Confirmation of Payee and how does it prevent fraud? 

Confirmation of Payee (CoP) is a service that checks account names match up to their correspondent account numbers and sort codes, giving businesses and consumers greater assurance that they’re sending payments to a legitimate account. Confirmation of Payee is being introduced by Pay.UK and Modulr this year for outbound payments, with inbound payments coming soon.   

How Confirmation of Payee works

A user, either a business customer of Modulr or one of their end users, wants to make a payment. For example, a lender might want to make a loan disbursement to a new borrower. They call Modulr's API with the borrower's account name, account number and sort code.  The system then automatically checks the borrower's account name and details against the details held by their bank.

This process will return one of four results:

  • Match. The name matches the account details. The user can proceed with making the payment – however if anything else about the situation doesn’t seem right, they should always stop and question the payment.
  • Close match. The details are similar and a correct name is returned for the user to check.
  • No match. The name isn’t correct.
  • Unable to verify. The system was unable to verify the account name, typically because the recipient’s bank was not involved. This outcome should become infrequent as more banks get on board with Confirmation of Payee.

Armed with this information, the user can make a more informed decision when deciding to process a payment. It is important to note that Confirmation of Payee is a recommendation and the user will still be able to proceed with payment regardless of the result.

What kinds of fraud does Confirmation of Payee target? 

Confirmation of Payee can be used to verify both personal and business accounts. Its main purpose is to stop malicious redirected payments, where a fraudster lures someone into paying money by pretending to be someone else or impersonating a business account holder.

For example, a fraudster might email a business pretending to be an existing supplier and ask for their account details to be changed. In this instance, Confirmation of Payee will alert the user that the fraudster’s account doesn’t match the intended supplier’s name. 

Confirmation of Payee will also help to prevent payments from going through in the case of accidental input, by alerting users. If the user makes a mistake when manually entering the name, account number or sort code, Confirmation of Payee will detect this.

However, it's important to note that even if Confirmation of Payee detects a match in the name and account details, this doesn't protect against all kinds of fraud. The user should always stop and question the payment if anything else about the situation seems suspicious. For example, Confirmation of Payee can’t protect users against swindling schemes, where the payee’s details are real but they’re operating a fraudulent business.

The benefits of Confirmation of Payee for businesses 

Businesses stand to gain immensely from Confirmation of Payee and the protection it offers against APP fraud. The potential benefits include:

  • Reduced risk of direct financial losses. When using Confirmation of Payee, businesses are less likely to make a transfer to a fraudulent party. On average, businesses that were hit by fraud in 2019 lost £18,000 each – money that is often difficult to get back.[iv]
  • Reduced time spent on fraud resolution. Resolving fraud can be expensive and time-consuming, involving many entities. The business may have to pursue their bank and the recipient bank to try and recall money, sometimes with no success. 
  • Cost-effective and reliable. Confirmation of Payee is reliable as it draws on the payee's bank data in real-time. The alternatives - bank validation tools - are more expensive, can become outdated, and are relatively easy for fraudsters to opt out of. Likewise, penny tests and requests for bank statements create friction and are operationally intensive.
  • Better customer experience. Often when you send a payment to a fraudster, it means a legitimate recipient (customer or supplier) is left waiting to receive their funds. Confirmation of Payee gives greater assurance that customer payments are going to the intended recipient.

Which businesses will benefit the most from Confirmation of Payee? 

Confirmation of Payee can benefit any business that processes payments, but there are certain industries where it is set to have a more significant impact. The following types of businesses could benefit the most from implementing Confirmation of Payee:

  • Lenders. The lending sector is a prime target for fraudsters, so lenders need to be extra vigilant. For example, a fraudster may submit a loan approval in someone else’s name and have the loan disbursed to their own account. Confirmation of Payee will prevent this by catching discrepancies between the applicant’s name and the account holder. 
  • Neobanks/alternative banks. Neobanks are fighting two battles when it comes to fraud. They need to protect their customers from falling victim to Authorised Push Payments fraud. At the same time, neobanks must prevent their customers from committing Authorised Push Payments fraud with their accounts, as this can damage their brand. Modulr estimates that every year, neobanks spend more than £15k per million accounts on resolving inbound fraud. 
  • Accounting software providers. Accountants and finance teams, especially at SMEs, are often the target of accounts payable fraud and phishing or social engineering schemes. These attacks are becoming increasingly sophisticated.Confirmation of Payee provides an extra layer of safety to protect the users of accounting software.

Building a safer payments ecosystem 

Fraud is a major problem for businesses and consumers, and it’s only likely to increase, as criminals constantly seek new ways to steal funds. That’s why the launch of Confirmation of Payee is so important, as it will provide an extra safeguard against misdirected payments (both accidental and malicious). This should protect UK consumers and businesses from losing millions to APP fraud every year. It represents a significant step forward towards a safer payments ecosystem.

Read the Confirmation of Payee documentation.

For more information about Confirmation of Payee, powered by Modulr, contact us here.

[i] UK Finance, Fraud – The Facts 2020: The definitive overview of payment industry fraud, 2020.

[ii] UK Finance, Fraud – The Facts 2020: The definitive overview of payment industry fraud, 2020.

[iii] UK Finance, Fraud – The Facts 2020: The definitive overview of payment industry fraud, 2020.

[iv] UK Finance, Fraud – The Facts 2020: The definitive overview of payment industry fraud, 2020.