Boom in credit card fraud as banks mail 130m chip and pin replacements

The introduction of new technology designed to make credit cards safer is fuelling a mini boom in card fraud caused by the banks sending out millions of chip and pin replacements - thousands of which are going missing.

The big banks are rushing to replace the nation's 130m credit and debit cards ahead of a January 1 deadline that will see retailers asking shoppers to tap in a pin number rather than sign a receipt when paying for goods.

With so many cards being sent out, the number that is being intercepted by thieves is ballooning and the industry, which lost £43.4m to "mail non-receipt fraud" in 2003, is bracing itself for further losses this year.

The banks recently admitted they only use courier companies to send customers their replacement cards in exceptional circumstances.

The majority of cards are sent out using Royal Mail's standard service, which last year lost more than 14m items of post.

The problem is being exacerbated by the fact that most customers are not expecting a replacement as their existing card may have months to run before the expiry date.

Some banks send out "active" cards that can be instantly used alongside the old non-chip and pin card.

The first the victim knows about the crime is when they try to access their cash - only to discover that they are at their overdraft limit.

A spokeswoman for the Association for Payment Clearing Services, the body that polices the industry, admitted the sheer number of cards being sent out means more are going missing.

"There is a feeling that there is a concerted effort among criminals to get more money out of the system ahead of chip and pin's introduction.

"When all shoppers are tapping in a pin number rather than signing for goods, it will make life harder for thieves. Until everyone has the new cards, we expect mail non-receipt fraud to rise even more than the 17% it rose last year.

"For the banks it is a risk assessment exercise, but you have to remember that the majority of cards arrive without problem - when they do go missing in the post the customer is not liable for any subsequent losses," she said.

Police stations in London are getting "three to four" people a day reporting such thefts. Many victims were unaware their bank had sent them a new card as they were still using the old one.

In some cases the thief had intercepted both the new pin number and the card and had raided the account via cash points.

The banks want all cards used in the UK to be chip and pin before January 1. After that date the liability for fraudulent purchases is assumed by the retailer - where staff fail to demand a pin and the card turns out to be stolen.

The cards themselves have not been without problems. Last week, Nationwide was preparing to send some of its customers their third chip and pin credit card in almost as many weeks.

It was forced into the move after several hundred customers received cards that would not work with the latest terminals.