UK banks, building societies and retailers are to introduce a more secure method of authorising credit card payments.
Designed to combat fraud, the Chip and PIN Programme will see the magnetic stripes on credit and debit cards replaced with smart chips. The huge project will see more than 850,000 retailer terminals, 122 million cards and 40,000 cash machines upgraded by 2005.
To help combat credit card fraud in the future, consumers will verify their purchases by keying in a four-digit PIN (Personal Identification Number) - rather than signing a receipt.
For consumers, the new system should mean greater protection against fraudsters, as fraud on skimmed or stolen cards (which account for more than 60 per cent of total losses) will be reduced significantly.
Card fraud is one of the fastest growing crimes in the UK. A record £424.6 million of fraud was committed on UK cards in 2002, up from £411.5 million in 2001, according to UK trade association the Association for Payment Clearing Services (APACS).
Counterfeit card fraud is the biggest category, accounting for £148.5 million stolen in 2002, followed by card not present fraud (£110.1 million) and lost and stolen cards at £108.3 million.
Chip and PIN starts with a public trial in Northampton which will begin in May 2003, followed by a national rollout. During the trial, Northampton consumers will be prompted to use their PIN for one in every two or three transactions, using a range of debit and credit cards, and will become the UK's first Chip and PIN users.
American Express, Barclaycard, Barclays Bank plc, the Co-operative Bank, Egg, Girobank Merchant Services, HSBC, Lloyds TSB, MasterCard, The Royal Bank of Scotland Group, Switch and Visa are all participating in the trial.
Large and small shops, petrol stations, pubs, hotels and restaurants will also be involved. In total, around 1,000 retailers are expected to participate.
Chip and PIN cards and retail terminals in Northampton will continue in use beyond the trial period.
The UK is one of the first countries to introduce chips on cards which meet new global specifications known as EMV (Europay/MasterCard and Visa). In time this means cards will be accepted around the world using the same security checks.
A similar domestic PIN-based system in France has seen an 80 per cent reduction in fraud since its introduction ten years ago. Most European countries, including France, are expected to implement the EMV system over the next five years.
Chris Pearson, Chief Executive of APACS, said: "This is a turning point in the fight against plastic card crime in the UK. More than £1 million worth of card fraud is committed every day - that's a fraudulent transaction every eight seconds. We're putting in measures which will have a significant impact on this figure, will ensure better safety for UK consumers and will help take away the nightmare of card fraud."
Bill Moyes, Director General of the British Retail Consortium, said: "Chip and PIN has the potential to combat the growing incidence and cost of card fraud. Retailers are working closely with the banking industry to ensure that implementation is smooth and customers understand what these changes mean for them."
The Northampton trial is the start of a full national rollout due to be completed by 2005. Cards will be reissued and retailers will upgrade their terminals throughout the period. Consumers do not need to take any action themselves as their card companies will get in touch when they are ready to issue the new type of card. ®
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