With digital payments on the rise, fraudsters are finding new ways to exploit vulnerabilities, making it more important than ever to protect businesses, financial institutions, and consumers. One of the most pressing threats is authorised push payment (APP) fraud, where fraudsters deceive individuals and businesses into transferring money to fraudulent accounts.
To combat this, the European Union has introduced Verification of Payee (VoP), a solution similar to the UK’s Confirmation of Payee (CoP). VoP serves as a crucial safeguard in the fight against financial crime by verifying payment details before transactions are completed.
In this article, we will explore how Verification of Payee helps prevent fraud, its role in reducing misdirected payments, and why it is essential for businesses and financial institutions. Additionally, we will discuss how VoP contributes to app fraud prevention and its place among other app fraud solutions.
What is verification of payee?
Verification of Payee is a name-checking service that ensures payments are directed to the intended recipient. Before completing a transaction, the system verifies whether the entered payee details match those registered with the recipient’s bank. If the details do not align, the payer is alerted, reducing the likelihood of misdirected payments or fraudulent transactions.
The concept of Verification of Payee (VoP) was introduced as part of the Instant Payments Regulation (IPR), adopted by the European Parliament in March 2024. This regulation enhances payment security by requiring Payment Service Providers (PSPs) to verify the payee’s identity before authorising a payment, thereby reducing fraud and errors.
To support implementation, the European Payments Council (EPC) published the first VoP Scheme Rulebook on October 10, 2024. This rulebook provides the framework for PSPs across the Single Euro Payments Area (SEPA) to comply with the IPR requirements and strengthen fraud prevention measures.
How does verification of payee prevent fraud?
VoP plays a significant role in fraud prevention by reducing errors and blocking unauthorised transactions before they occur. Key ways in which it helps prevent fraud include:
- Preventing misdirected payments – Human error or incorrect details can result in payments being sent to the wrong recipient. VoP mitigates this risk by validating payee details before a transaction is processed.
- Reducing authorised push payment fraud – Fraudsters often impersonate legitimate organisations to deceive victims into transferring funds. VoP enables businesses and individuals to verify recipient names, thereby reducing the chances of falling victim to APP fraud.
- Enhancing financial crime prevention – Criminals use money mules and fraudulent accounts to launder stolen funds. By implementing VoP, financial institutions can identify suspicious discrepancies and prevent fraudulent transactions from occurring.
- Strengthening business payment security – Businesses making high-value payments or frequent transactions can benefit significantly from VoP, ensuring payments reach the correct supplier, partner, or client.
The impact of verification of payee on APP fraud prevention
APP fraud is one of the fastest-growing financial crimes, with victims losing billions each year. As digital banking and real-time payments become more widespread, fraudsters continue to exploit system vulnerabilities. In response, Verification of Payee (VoP) has been introduced in the EU as a crucial safeguard against fraud by verifying recipient details before transactions are processed.
While the UK has implemented Confirmation of Payee (CoP) to address APP fraud, the EU’s VoP framework, introduced under the Instant Payments Regulation (IPR), serves a similar function but is designed specifically for businesses and financial institutions operating within the Single Euro Payments Area (SEPA).
By ensuring that businesses and individuals confirm recipient details before processing payments, VoP reduces the chances of fraudulent transfers going unnoticed. This is particularly beneficial for businesses managing multiple payees and suppliers, where even a small mistake can lead to substantial financial losses. With the European Payments Council (EPC) VoP Scheme Rulebook, PSPs now have a standardised approach to fraud prevention, enhancing security across EU transactions.
Why businesses and financial institutions need verification of payee
Businesses and financial institutions face growing regulatory pressures to enhance fraud prevention strategies. VoP not only helps with compliance but also strengthens overall payment security. Here’s why it’s essential:
Reducing liability and financial loss
Implementing VoP minimises the risk of sending payments to incorrect or fraudulent accounts, reducing financial losses for businesses. By ensuring correct payee details, companies can avoid costly disputes and recoveries.
Enhancing customer trust
Customers and clients expect secure payment processes. By integrating VoP into their payment systems, financial institutions and businesses demonstrate their commitment to protecting customers from fraud, increasing trust and satisfaction.
Strengthening compliance with financial regulations
Regulators are enforcing stricter anti-fraud measures. In the UK, the Payment Systems Regulator continues to expand VoP requirements beyond major banks, making it an industry standard. Businesses that proactively adopt VoP will be ahead of regulatory changes and compliance obligations.
The challenges of implementing verification of payee
While VoP provides a robust fraud prevention mechanism, its implementation comes with challenges. Some of the key barriers include:
- Integration complexity – Businesses using legacy payment systems may find it challenging to integrate VoP technology seamlessly.
- Coverage limitations – Currently, VoP is primarily mandated for UK banks, which means cross-border payments may not always benefit from the same level of verification.
- False positives – Mismatches in names due to abbreviations, legal names, or special characters can sometimes result in unnecessary transaction delays.
Despite these challenges, the benefits of VoP outweigh the drawbacks, making it a crucial tool in modern payment security frameworks.
Future outlook: what’s next for verification of payee?
As financial crime continues to evolve, so must fraud prevention strategies. The future of Verification of Payee includes potential expansions such as:
- Global adoption – Other countries are exploring similar verification models to combat fraud, indicating a move towards international VoP adoption.
- Integration with artificial intelligence (AI) – AI-driven fraud detection can work alongside VoP to provide more accurate verification and detect anomalies in payment behaviour.
- Wider industry adoption – More sectors, including fintech and non-banking financial institutions, are expected to integrate VoP into their payment systems.
Conclusion
Verification of Payee is a critical tool in reducing fraud and enhancing payment security. By verifying recipient details before a transaction is processed, VoP prevents misdirected payments, strengthens APP fraud prevention, and helps businesses and financial institutions comply with regulations.
AccessPay’s Account Name Verification service plays a key role in safeguarding businesses against fraudulent transactions and misdirected payments. By incorporating AccessPay’s Fraud & Error Prevention Suite, businesses can ensure financial security, maintain regulatory compliance, and protect their reputation.
Take control of your financial security today! Contact AccessPay to learn how our verification solutions can help protect your business from fraud and payment errors.
