Chips with everything

by Sarah Modlock

9 March 2005

A report out this week shows that credit card fraud is up. And how. Our plastic is being bled dry by fraudsters to the tune of nearly £505 million a year. That's some shopping trip, even by my Olympic standards.

Last year's spend is a 20% increase on the amount for 2003. The rise is attributed to thieves increasing their illegal activity before the security benefits of chip and PIN are fully realised, says APACS, the UK payments association.

Crooks rubbed their hands with glee at the prospect of grabbing some of the 100,000 cards a day sent out with the new chip and PIN technology during 2004. With 140 million cards to replace, it was inevitable that some would fall into the wrong hands but this does raise some depressing questions about how easy it is for them to intercept our post.

The main areas of card fraud, according to APACS, include counterfeit cards where £129 million was stolen last year - up 17% on 2003. There is also a rise in card-not-present and identity fraud as the number of businesses offering transactions via phone, fax or online increases.

But fraud where the card was lost or stolen in the post, now accounts for £72 million in stolen money, up an astonishing 62% on the 2003 amount. Increasingly, chip and PIN will help address these areas of fraud as the number of shops where cards stolen in transit can be used without a PIN will diminish. 'As more of us use a PIN the harder the criminal's life becomes,' confirms Sandra Quinn of APACS. 'We estimate that if we had not rolled out chip and pin card fraud would rise to £800m this year,' she said.

Smart cards

We don't get many of our best ideas from the French but when they pioneered chip and PIN cards there 10 years ago, credit card fraud fell by 80%. Now it's creating the biggest change to the way we shop since decimalisation. Or cappuccinos.

Chip and pin cards aim to cut fraud by including a smart chip, which can store more information than the usual magnetic strips, and also by having users verify transactions by keying in a PIN number rather than signing a receipt.

Compare credit cards here

Your credit card won't look any different but a small microchip will be embedded which will hold the same personal data as the magnetic stripe (e.g. cardholder name, card number and expiry date) but also adds a range of indicators and counters which reduce the opportunities for fraud. You can tell if you already have one of the new cards by looking for a silver or gold coloured square on the front left-hand side of the card.

The PIN process is also faster than the signature system, allowing you even more shopping time. In fact, nearly half of those questioned in a survey for Mastercard said they would expect use their card more once the safer chip and PIN system had been introduced. That's the spirit.

Numbers game

Finding out the pin number of a particular card is much harder than copying a signature but it's now more important than ever to make sure that no one is looking over your shoulder when you enter it. It's also essential to note that your PIN will never be needed for mail order, telephone, or internet purchases and you should never reveal your PIN in any circumstances.

Chip security systems are reviewed and updated regularly. The UK card industry maintains a multi-layered approach to security so that it is not reliant on any single system. Don't panic if you have not got the new type of card yet; banks still have another 50 million to issue.

There is some good news for our plastic - overseas fraud involving UK cards is down by 11%. It still cost us £92 million in 2004 but it is hoped that card companies' use of increasingly sophisticated fraud intelligence systems to detect fraudulent spending on cards will reduce it further. I get a phone call from my debit and credit card issuers almost every time I go abroad. They are checking that it is really is me doing all that shopping and not Ivana Trump. Last time I spoke to them, I asked whether they would eventually encourage card holders to let them know before heading overseas so it could be flagged on their account. But apparently they don't have the technology for that. At least, not yet.

In the meantime, treat your credit and debit cards like cash - that's what they represent to thieves. It may be dull but read your statements carefully when they arrive - they could be provide the first clues to fraud so contact your card issuer straight away if you see unfamiliar transactions. If you don't keep your statements then make sure you shred them or rip them up before throwing them away - you would be amazed how many people don't bother, making it easy for fraudsters to steal their identities. Finally, check your credit reports for accuracy at least once a year. Don't have nightmares - spend safely.