Chip cards fail to pin down fraudsters

Anyone using a chip and Pin card to withdraw money from cash machines will continue to be at risk from fraud, despite being forced to use Pins for all transactions from next February.

The Association of Payment Clearing Services (Apacs) announced last week that from 14 February retailers will no longer be able to accept a signature instead of a Pin - the standard default option for cardholders who have forgotten their Pins.

But Apacs has told Cash that the majority of ATMs will continue to read the magnetic stripe on the back of a card instead of the chip, meaning cardholders will still be open to fraud from cash machine 'skimming'.

The fraud typically works by con artists using a false front on a cash machine to clone a card's magnetic strip and recording details of the Pin by using a tiny camera. It has not been halted by chip and Pin technology because most ATMs still read the magnetic strip on the back of the card as an alternative to the chip, enabling cloned cards that just have the strip to be used around the country.

Fraud by skimming at cash machines grew by almost 85 per cent in the year to December 2004, according to Apacs figures, and was the fastest-growing form of fraud over the 18 months to June.

'There is no specific date when ATMs will switch from reading the magnetic strip to the chip,' said Sandra Quinn of Apacs.

'Some banks already have ATMS which are reading chips at certain times of the day and throughout next year some banks will switch to all chip-reading machines. But this is a bank-by-bank decision and there is no industry-wide date for it to happen.'

This offers little reassurance to those who are suffering from skimming. Liz Myers and her husband have a joint account with Lloyds TSB, from which they both have a daily withdrawal limit of £200 each on their chip and Pin cards. Two weeks ago Liz tried to withdraw £200 but, much to her confusion, the request was declined. When she got home she found a letter from LloydsTSB saying that it had noticed some unusual activity on the couple's account. Liz called the bank and put a stop on the card once she realised that £780 had been fraudulently taken out in four separate withdrawals.

'The bank told us that it looked like our chip and Pin card had been skimmed at a Link cash point in north London, which we had used the previous week,' she says. 'The fraudsters had then used the cloned card in a number of ATMs.' The couple have been reimbursed with the money while the bank investigates.

Earlier this year 29-year-old Rosalind Ryan had her Halifax card cloned at an Abbey ATM. She contacted Cash in confusion when the cloned version was used to withdraw money from another Abbey ATM.

'I was disappointed and baffled because I thought the chip protected against this,' she says. Abbey said at the time that, like many other banks' cash machines, its ATMs do read chip cards, but if the machine detects that there is something wrong with the chip it will revert to reading the strip.

Apacs said that fraud on counterfeit and lost and stolen cards had fallen by £36 million in the six months to June this year compared with the same period last year, as a direct result of the new chip and Pin system.

Figures for fraud by skimming will be released next month, but Apacs believes early indications show that they have started to drop, following the huge increase last year.

The next phase of the chip and Pin programme, which will begin on Valentine's Day, will see retailers demanding the use of Pins. Signatures will only be accepted after this date in stores where chip and Pin readers have not yet been introduced and from cards which have not yet been upgraded to chip and Pin. Some disabled customers will also be able to continue signing for purchases.