Blue Passports, Half Crowns and the New Slower Payment Service

The last time that I bought a car, I paid for it this way. I went to look at the car, test drove it and then did a bit of online research. The price seemed fair for the condition, so I called the dealer back and agreed the sale. He told me his bank sort code and account number. I put these into my Barclays account and transferred £10 to the dealer. He texted me a minute or so later to confirm that the money had been received. So then I called my insurance company to add the car to my policy. Then I drove over to the dealership and to pick up the car and the documents. While I was there, I used the Barclays app on my phone to transfer a few thousands of quids to the dealer. About 30 seconds later he checked his account and saw that the money was there, so he gave me the keys and off I went.

(Meanwhile, my friend Simon told me that to pay his rent in New Jersey, he logs in to his American bank account to instruct the payment, then the bank prints out a paper cheque that it mails to his landlord. The landlord then takes the cheque to his bank to pay it in, and after a couple more days the money shows up in this account. This expensive and inconvenient payment mechanism sometimes takes 

Meanwhile, back in the UK, my friend Nick bought a boat a while ago. He saw that someone had the boat he wanted and went over to look at it. A sale was agreed, he transferred the money on the spot using the phone and drove away towing his new boat.

Now, you would think that this wouldn’t be much of a crime. After all, thanks our comprehensive and expensive know your customer (KYC) and anti-money laundering regulations, the police should find it very easy to arrest the criminals. If my Dad transfers money to someone who turns out not to be the fraud department of the NatWest, there are really on two possibilities: the recipient bank knows who the account belongs to (in which case the police can arrest the account holder) or they don’t know who the account belongs to (in which case the police can arrest the head of compliance at the bank for not doing proper KYC). And if the destination account is a “mule” then, well, they should be arrested.

The Treasury Select Committee takes a different view. If my Dad sends money from his Barclays to someone who turns out not to be the fraud department of the NatWest, then under the current guidelines that is Barclays’ fault and they have to compensate him. The compensation is paid for from an instant payments levy. To cut down on the amount of fraud, the Committee is now suggesting that all instant payment transfers to new payees be revocable for 24 hours. So in the future I will have to wait a day to pick up my new car and my friend Nick will have to wait a day to pick up his new boat.

So we are all going to be inconvenienced (and charged) because people send money to fraudsters.

The underlying problem here is that we have no working digital identity infrastructure for use by financial services. Bank customers who are tricked by fraudsters have no idea who they are actually sending the money to.