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

Modulr By Modulr on 1 September 2020   •   9 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 service 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 new service that can be used to check the account details of a payment recipient (payee) with their bank before a payment to them is made. It is, in essence, an "account name checking service" that can help avoid payments being accidentally sent to the wrong place or maliciously misdirected.

If the account details are confirmed, users will have greater assurance that a payment will reach the correct bank account.

Confirmation of Payee helps address certain types of Authorised Push Payment (APP) fraud, by introducing another hurdle for fraudsters, and gives effective warnings about the risks of sending payments to an account where the name does not match.

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

How do I use Confirmation of Payee?

Prior to making a payment to a new payee, a request to our Confirmation of Payee API is made with the payee’s account name, account number and sort code. We then check the details with the receiving bank and return a result, typically one of:

  • 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 the correct name is returned for the user to check.

  • No match. The name provided isn’t correct.

  • Unable to verify. The system was unable to verify the account name, typically because the payee’s bank was not involved. This outcome will 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 the payment. It is important to note that Confirmation of Payee is a recommendation, and the user will always be able to proceed with a payment regardless of the result.

What does this mean for receiving payments?  

To avoid problems when receiving payments, it’s important that the person sending the payment (payer) knows:

  1. The type of account that the payment is being sent to (either a Personal or Business account).

  2. The full account name as registered on the account.

For personal accounts, an individual’s full first and last name must be provided - not nicknames or shortened versions. For joint accounts, the details of only one of the account holders is required.

For business payments, payers must be provided with the name registered on the account, even if they trade under a different name. For example, if the account name is “XYZ Limited” but the trade name is “ABC” then the name that should appear to Payers on invoices for example is “XYZ Limited”.

Customers are encouraged to keep their account details updated to avoid problems when receiving payments.

Can account holders opt out?

In very exceptional circumstances it is possible to be opted out of Confirmation of Payee. In doing so, account details will not be confirmed with a person or business attempting to make a payment to the account.

Confirmation of Payee is an industry wide initiative designed to reduce fraud so we strongly recommend that account holders remain opted in to the service, however, to discuss opting out please contact us.

Note that opting out of Confirmation of Payee does not prevent the service from being used when making outbound payments and it is possible to opt back in at any time.

Is account holder data secure?

Yes. Providers of Confirmation of Payee use secure technology to safely exchange Confirmation of Payee requests. To be authorised to use the service, rigorous checks are made and providers must also be regulated by the Financial Conduct Authority (FCA).

Why can Modulr provide Confirmation of Payee?

Modulr has worked closely with Pay.UK to launch its Confirmation of Payee service and is the first non-bank or building society to do so.

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 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 payee’s 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 the 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.

  • Crypto exchanges. Outbound CoP checks give crypto exchanges confidence that their customers are withdrawing funds to their own bank accounts, which can be a valuable feature to reduce fraud and streamline customer experience when customers have not deposited GBP before or have changed bank accounts.

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 Developer 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.