Chip and PIN, which allows shoppers to verify purchases at point of sale by keying a four-digit PIN instead of signing on paper, was launched last year to tackle the growing problem of credit and debit card fraud. It became operational on 1st January.
However, according to APACS (the Association for Payment Clearing Services), the rollout of the new system has had an adverse, and hopefully temporary, impact on the level of credit card fraud, with fraudsters stealing large numbers of the cards before they reach their account holders.
APACS' figures show that losses from this type of fraud (called mail non-receipt fraud) grew sharply last year – up by 62% to £72.9m. Chip and PIN's rollout put an unusually high number of cards in the mail, which may explain the rise.
Sandra Quinn, director of corporate communications with APACS, said: "When the banking industry decided to introduce chip and PIN in the UK our fraud forecasts showed that without it card fraud losses would top £800 million by 2005. So while we still have a battle on our hands, we are on track to see a significant reduction in this amount."
According to APACS, card-not-present fraud (CNP) continues to be the biggest problem, with losses up by 24% to £150.8 million compared to £122.1 million in 2003. But these losses are proportional to the number of businesses now offering transactions made by phone, fax or on-line.
On-line credit card payments have increased five-fold since 1999, to the point that 10% of all credit card spending now takes place on-line, says APACS.
The figures also show that fraud at UK cash machines grew by a massive 81% to £74.6m, up from £41.1m in 2003, and that ID theft on cards has also grown significantly over the last two years – up 22% from £30.2 million in 2003 to £36.9 million in 2004.
Counterfeit card fraud, where cards are skimmed or cloned, increased slightly (up 17% to £129.7 million in 2004 from £110.6 million in 2003) and there was a small rise in fraud on lost and stolen cards (up 2% to £114.4 million compared to £112.4 million in 2003).
Together, fraud on lost and stolen cards and counterfeit cards account for almost half (48%) of all losses, but the implementation of the new chip and PIN system – which is now almost fully complete – is set to have a major impact in these two areas, says APACS.
As well as plastic card fraud, organised gangs also moved into other types of financial crime, including phishing scams, ID theft and cheque fraud. According to the Association, on-line banking fraud cost UK consumers £12 million last year – the first time an official total has been recorded for this type of fraud.
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