As online fraud and romance scams continue to make the news headlines on a weekly basis, a new report authored by Professor John Gathergood from the University of Nottingham, sheds light on why so many people – regardless of age, background or education – can fall victim to financial scams, costing UK consumers around £500m every year.
The report, produced for the Payment Systems Regulator, explores how behavioural economics can help us to understand and prevent the ongoing threat of Authorised Push Payment (APP) fraud. APP fraud is a deceptive crime where individuals are manipulated into transferring funds to criminals. Victims are commonly deceived into thinking that they are transferring money to pay for a purchase, to an online friend in need, or to a new investment scheme – only to find out they have been conned by a fraudster who disappears with the money.
The report identifies key behavioural biases that make consumers particularly susceptible to APP fraud – including vulnerability to scarcity, willingness to trust, susceptibility to interpreting the illusory as true (a phenomenon linked to the representativeness heuristic), and rushed and pressured decision-making. Fraudsters exploit these vulnerabilities through tactics that create urgency, present 'too good to be true' offers, and mimic credible institutions.
Fraudsters who design APP fraud adopt many tactics and approaches to manipulate their victims - making scams seem attractive, believable and often a quick solution to problems. Behavioural economics provides a compelling framework for understanding the tactics fraudsters use, and why we fall for them."
The Payment Systems Regulator (PSR) and the payments industry have already taken steps to tackle these types of fraud. It is an important issue which can have a devastating impact on people's lives. In 2024 alone, UK Finance reported that there were around 185,000 cases, with losses of just over £450 million.
The economist, added: "The PSR and payments industry are taking many measures to try to address this problem. The report suggests some avenues for potential further measures built on key insights from behavioural economics."
Behavioural economics, which studies how people make decisions under cognitive and emotional influences, offers powerful tools to strengthen consumer protection. By challenging the traditional view of humans as rational actors, the field reveals how bounded rationality, loss aversion, and framing effects shape financial behaviour.
Professor Gathergood uses insights from behavioural economics to help inform potential further measures (from the PSR and others) that might help to prevent APP fraud.
Governments and regulators worldwide are increasingly applying behavioural insights to policy. Initiatives such as automatic pension enrolment and simplified tax forms have demonstrated how small 'nudges' can lead to better outcomes. The report presents that similar approaches can be used to combat fraud – especially by designing payment systems that encourage reflection at critical decision points.
