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Page last updated
February 16, 2003




UK's plastic card fraud losses will dive High rates of card crime will fall


Plastic card fraud is serious business in the UK, but high rates of card crime will fall when banks and retailers realise their shared vision of using 'smart' chip cards with PINs (personal identification numbers) by 2004.

To stop card fraud, two fundamental things need to be ensured - that the card is the genuine item and that the person using it is the true owner. In the last year the UK banking industry, in partnership with its retail colleagues, has moved a giant step closer to meeting both these requirements by 2004.

Fraud is a grave issue faced by the UK's retail and plastic card industries, with losses over the last year rising more than 30 per cent to £350 million. This rise is due to high levels of organised card crime as well as the increased usage of payment cards.

The highly-secure chip cards now being introduced in the UK (already there are 20 million) meet the first part of the fraud prevention fundamentals by ensuring that a card is not a counterfeit. This is because the microchip holds information very securely so it is not feasible to copy or alter the data contained in it.

Chip cards offer an excellent platform for tackling the second requirement for improving fraud prevention ; the reliable identification of the cardholder.

PIN expected by 2004
At a Home Office meeting in July 2001, UK banks and retailers announced their shared vision of introducing a payment card infrastructure based upon chip cards used with PINs to identify cardholders by the end of 2004. A high-level implementation plan has been agreed to meet this objective.

This signals the beginning of the most revolutionary change ever for the UK card payment system. Using a better method of identifying the cardholder combined with the chip's ability to verify that a card is authentic would drastically improve security and significantly reduce most types of fraud.

The 31 banks and building societies that are members of APACS, and issue 98 per cent of the UK's debit and credit cards, agreed unanimously to migrate to the use of chip cards with PIN. They are now working closely with their colleagues in the retail community to help them make the same commitment.

To enable the final decision to begin implementation, individual banks are engaged in complex one-to-one discussions with their retailer customers to settle a number of commercial issues. Significant progress is being made.

Big investment
The investment required to implement a chip and PIN system is significant. The total cost to UK banks and retailers will be approximately £1.1 billion.

Working together, banks and retailers will need to upgrade or replace over 100 million debit and credit cards, 750,000 point of sale terminals and 35,000 cash machines.

In addition to upgrading systems, banks and retailers will need to help their 40 million shared customers to use PIN rather than signature, and guide them through the transition process.

Global solution
Because card crime is an international problem, it needs a global solution. Chip cards provide the basis for this as they are built to a specification set by the international card schemes Europay, MasterCard and Visa (EMV). These specifications ensure chip cards are accepted in all countries where card payments are made.

The UK is one of many countries that recognise the EMV specification and significantly is the first to mass-issue cards that meet the requirement. Already there are 20 million chip cards in issue in the UK and by the end of next year, an estimated 55 million of the UK's forecasted 108 million credit, debit and charge cards will contain chips.

France, which has used a domestic chip-based PIN system for several years, has committed to upgrading systems by mid-2003 to be compatible with the EMV specifications.

The magnetic stripe will remain on cards in parallel with chips for a number of years to ensure that cards with the old and the new technologies can be used around the world. Ultimately, when all countries have adopted EMV-compliant chip cards and terminals, there will be an internationally interoperable system. At that point, magnetic stripes will no longer be included on cards.

Chip card security
Undoubtedly, chip is the most secure technology for payment cards available today. Chip card security systems make a counterfeit fraud attempt so expensive that it would vastly exceed the potential reward to the criminal.

In the exceptional case of a criminal getting access to the chip itself, the next layer of security is even more protective, to break into the chip's data would require a huge amount of computer power, time and very specialist knowledge and skill.

Chip security systems will continue to be reviewed and updated regularly, and the UK card industry maintains a multi-layered approach to security so that it is not reliant on any single system.

Extra benefits of chip
In addition to security benefits, chip cards have the ability to support add on services such as retailer loyalty schemes or electronic purse. Chip cards also have the potential to be used with readers attached to personal computers, mobile phones or digital TVs, to create very secure systems for on-line transactions of the future.

With the increase in security that chip cards bring, the potential exists for retailers to expand the use of unattended terminals in petrol stations, car parks and self-scanning at supermarkets.


Melanie Hubbard


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