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In time, we will be able merely to aim our cards at the point of sale to effect a transaction. Until then, a PIN based system may be a solution to the alarming increase in credit card fraud. Terry Corbitt reports.
The banks are introducing a new system to combat credit card fraud which, at present, is running at lm a day. With the new system, consumers using credit or debit cards for a transaction will authorise payment by keying in a PIN at the till rather than signing a receipt. The banks believe that the new system will cut credit card fraud by up to 300 million a year. Details of a trial of the new system will be announced shortly. Tesco, Sainsbury and Marks and Spencer have already signed up for the trial. Esso, Shell, Total and the train operators will also be involved. Around 100 million debit and redit cards linked to a PIN will start being issued later this year, with the changeover due to be completed by 2005.
The new system has resulted from years of pressure from the Home Office which has been angered by what it sees as ‘foot dragging’ by the banks. Home Office Minister, John Denham said, ‘Without action, credit card fraud was predicted to climb to L600m a year in the UK by 2005.’ He added, ‘It is important that where commercial activities create opportunities for crime, business continues to play its part in combating this crime. I am pleased that the banking industry and many of our leading retailers have agreed to introduce the technology that is so vital in fighting plastic card fraud.’
Ministers believe failure to operate the new system which has been in use in France for ten years has helped to fuel the rise in muggings and robberies. There is evidence that card fraud is linked to organised gangs involved in trafficking drugs and illegal immigrants.
The banks will spend an estimated L1.1bn to launch the new system but the savings on fraud could recoup this in four years. Richard Tyson Davies, of the Association of Payment Clearing Services, said, ‘There will be a year’s grace when it will still be possible to use a signature but after that I am afraid we will have to go for it.’ APACS reported a loss of 189m in 1999 with this rising to 300m in 2000. This fraud is expected to exceed L600m by 2005.
The new system will use computer chips on cards and secure PIN codes which will involve keypads being fitted to tills throughout the UK. The customer will have to key in a PIN which cannot be seen by the cashier. This authorises the transaction rendering the need to sign receipts redundant and making it impossible for criminals to use a stolen or counterfeit card without knowing the PIN. The banks will implant computer chips in cards to make them more difficult to copy, they will also print another security number on the card which can be used to authorise purchases over the Internet or telephone.
Credit card fraud has been cut by 80 per cent in France since a similar system to the one being proposed was introduced ten years ago and it is believed that introducing the system could deliver a saving of 500m a year by 2004.
It is thought that much of the fraud has gone unreported because credit card firms and the banks which own them do not like to admit the scale of their security problems. The cost of fraud is effectively passed to customers via higher interest rates and higher prices in shops which pay fees to offer credit card sales.
The theft of credit card details has become a global industry. Stolen petrol station till rolls and restaurant receipts have allowed criminals to manufacture large numbers of credit cards in Britain and abroad. The receipts include details of the card holder, the card number and expiry date, which are generally all that are required to make remote purchases. Fraudsters can use the Internet to order goods from anywhere in the world with the goods being deliver to ‘drop’ addresses in the UK. The fraudsters move to a new delivery address every month or two. The amount of gain in a payment card offence is often higher than in robbery and, if caught, the fraudster is likely to receive considerably weaker penalties. The new system will stop this.
The card industry has learnt from its experiences in the late 1980s and early 1990s when losses rose from around L80m to L165m. Changes were made and losses fell from 165m in 1992 to L83m in 1995. The card industry invested a considerable amount of money in an attempt to combat the problem, retailers contributed by agreeing tougher checking procedures at the points of sale and the police set up a working group and identified ways in which they could assist. In the short term, retailers must check transactions carefully. For example, signatures should be checked and be seen to be checked. Taking orders by telephone should be more carefully carried out. A good example is the Association of British Travel Agents (ABTA) which runs seminars for its travel agents and is providing guidelines for them when accepting card transactions. Other retail associations should follow ABTA’s lead.
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