Chip and PIN was meant to beat credit card fraud. Guess what? It's up 50%



Fraud increase: Criminal gangs have found more ways to bypass chip and pin technology

Card fraud has leapt almost 50 per cent since the introduction of the chip and PIN system that was supposed to cut the problem.

The total hit a record high of £609.9million in 2008, which was 14 per cent up on the previous year.

More disturbingly, the figure has jumped by £182.8million - 43 per cent - since the chip and PIN system became universal on Valentine's Day in 2006.

The surge in card fraud comes as the big banks are taking a tough line with victims and increasingly refusing to pay refunds.

At the same time the Home Office has decided that it is no longer the job of the police to record and investigate card fraud. Now police forces across the country are directing victims to their banks, rather than mounting investigations.

The card fraud figures come from the banking industry trade body, APACS, which has also seen a 132 per cent annual rise in theft linked to online banking.

The introduction of chip and PIN, under which payments are authorised with a four-digit code rather than a signature, required an investment of more than £1billion in new till machines.

The huge cost, passed on to shoppers in higher bills, was justified on the basis that it would drastically cut debit and credit card fraud.

However, the reality is that it has provided a springboard for a massive explosion in the cloning of cards.

Before the change, PINs were used at some 50,000 bank cash machines. Now they are used at more than 900,000 tills, including high street stores and restaurants.

This has multiplied the opportunities for criminals to steal the PINs and the information on the magnetic stripe, which are needed to create copies.

Fraud linked to counterfeit or cloned cards hit £169.8million in 2008. That was up by 18 per cent on 2007 and by 75 per cent compared to 2005.

Security expert Professor Ross Anderson, of Cambridge University's Computer Lab, said: 'The banks' claims that chip and PIN would curb fraud was nothing but spin. The reality is that the system is broken.'

He said the Government decision to switch reporting of card fraud from the police to the banks was a mistake. 'This totally unwarranted privatisation of the justice system means people just can't get these crimes investigated,' he said.

The chip and PIN system does not deal with the problem of cards being used to make purchases via the internet, telephone or mail order.

Fraud in this sector totalled £328.4million last year. It has more than doubled over the last five years.

APACS said online banking fraud rose 132 per cent last year to a total of £52.5million.

Criminals are finding ways to access the web bank accounts of victims to steal their cash.

Most often this is done through 'phishing' where the criminals send out emails pretending to be from a person's bank directing them to a bogus site where their access passwords are stolen.

However, there is also a problem where criminals implant spying software - malware - on the computers of their targets.