Vidos Joins FCA Digital Sandbox to Combat APP Fraud Through Digital Identity

Highlighting the UK's growing focus on secure financial systems, Vidos has been selected to participate in the UK Financial Conduct Authority's (FCA) Digital Sandbox programme. Our participation centres on leveraging digital identity verification technology to combat authorised push payment (APP) fraud for banks, payment processors, and merchants - a critical business challenge that cost victims £459.7 million in 2023¹.

The Business Impact of APP Fraud on Financial Firms

For banks and payment firms, APP fraud represents not just a consumer protection issue but a significant business liability. With the Payment Systems Regulator's (PSR) mandatory reimbursement requirement implemented on October 7, 2024, financial firms now share a 50:50 cost split between sending and receiving firms for reimbursing fraud victims². This regulatory change has transformed the economic incentives for fraud prevention across the entire payments journey.

Early data from the PSR indicates that in just the first three months after implementation, 86% of money lost to APP scams was returned to victims, totalling around £27 million³. For banks and payment firms, this represents both a significant operational cost and a powerful incentive to implement more effective preventative measures.

Addressing Critical Verification Failures in Financial Systems

Purchase scams have become particularly problematic, accounting for 67% of all APP cases in 2023 with losses of £85.9 million¹. These scams exploit specific verification weaknesses that directly impact financial firms:

• Insufficient recipient verification: Current Confirmation of Payee systems only match account names without validating business legitimacy
• Cross-platform verification gaps: Limited data sharing between where scams originate and where payments process
• Warning fatigue: Standard alert messages frequently ignored by customers during transactions
  

While Vidos' solution addresses all types of APP fraud, it's particularly focused on combating purchase scams, invoice and mandate scams, CEO fraud, and general impersonation scams - sophisticated attacks that cause significant losses for businesses and individuals. Other types of APP fraud are also positively impacted when firms implement the solution within their payment flows.

Vidos Proposes A Three-Pronged Approach

Within the FCA Digital Sandbox, Vidos is developing solutions tailored to the needs of banks, merchants, and payment processors with three critical focus areas:

1. Seller verification integration: Enabling firms to verify online seller credentials before processing payments, reducing fraudulent merchant transactions
2. Transaction validation architecture: Creating payment verification infrastructure that ensures payments reach legitimate recipients while maintaining processing speeds
3. Privacy-preserving data sharing: Implementing cryptographic methods for financial firms to verify critical transaction details without exposing excess personal data
   

These capabilities leverage advanced cryptography and real-time data verification to give financial firms stronger fraud prevention capabilities while maintaining transaction efficiency and customer experience.

Why Digital Identity Matters to Financial Firms

For banks, payment providers, and merchants, digital identity verification offers a transformative opportunity to rebuild trust in online transactions. Under the new APP Fraud Reimbursement Model, both sending and receiving firms face equal financial liability for fraud losses². This creates a compelling business case for implementing stronger verification.

The PSR's early implementation data shows that the reimbursement requirement is driving increased collaboration between financial firms. Most claims (86%) were reported by sending banks to receiving firms within two business hours, and 84% of claims were resolved within five business days³. This indicates that the financial sector is already adapting to the new requirements with improved inter-firm communication.

"APP fraud devastates victims, and we're focused on practical ways to stop it," said Tim Boeckmann, CEO of Vidos. "Robust digital identity can protect people and businesses from scams without adding friction to payment processes - creating value for financial firms while reducing their liability exposure."

The FCA Digital Sandbox Advantage

The FCA Digital Sandbox provides Vidos with unique resources to develop solutions specifically targeted at the financial sector:

• Access to synthetic financial data for testing real-world payment scenarios
• Collaboration opportunities with established banks, merchants, and payment processors
• Regulatory guidance to ensure solutions meet compliance requirements
• A controlled environment to validate approaches before market implementation
  

This controlled setting allows Vidos to refine integration points with financial systems and develop solutions that easily fit into existing banking and payment workflows.

The Business Opportunity

For banks, payment processors, and merchants, the dual pressures of the PSR's reimbursement requirements and growing fraud losses create a significant need for innovative solutions. The PSR reports that 60 different financial firms that received claims in the first three months of the reimbursement policy had to reimburse victims of APP scams³.

Digital identity verification isn't just a security enhancement—it's becoming an essential component of sustainable financial operations as regulatory requirements evolve.

Next Steps for Financial Firms

For banks, payment processors, and online merchants looking to strengthen their fraud prevention capabilities and reduce reimbursement liabilities, Vidos offers a pathway to implement cutting-edge verification solutions.

If your organisation is interested in exploring how digital identity verification can help protect your financial transactions from APP fraud while reducing regulatory compliance costs, contact our sandbox team at fca-sandbox@vidos.id to discuss potential solutions.

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References

1. UK Finance, "Annual Fraud Report 2024," published June 2024.
2. Payment Systems Regulator, "PSR continues to take bold action on APP fraud as it publishes final reimbursement details ahead of 2024 implementation," December 2023.
3. Payment Systems Regulator, "The story so far: A snapshot of what we've seen since our APP scams reimbursement requirement went live," May 2025.

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