Why you can lose more at cards

Chip and pin was heralded by credit card companies as the best way of ending fraudulent use of credit and debit cards. But so far it has only added to the problem.

Losses from card fraud rose by 20 per cent last year, according to figures issued by the Association for Payment Clearing Services (Apacs) last week, attributed at least partly to fraudsters cashing in on their last chance before chip and pin is fully rolled out.

Fraud on cards stolen before the genuine holders receive them grew 62 per cent last year, to £72.9 million. Easy pickings for thieves when 100,000 cards a day were sent out, but why aren't banks doing more to combat the problem? One easy solution would be to get cardholders to collect their new cards from a secure address, such as their nearest bank branch.

'The reason banks do not is that in some cases it just isn't practical,' says Sandra Quinn of Apacs. 'For example, if you're with a bank like MBNA, they don't have any branches.'

Cash talked to a number of issuers about their delivery methods: the general approach is that your postcode will be 'risk-assessed' before deciding whether to use the Royal Mail, a courier service or branch collection. An address could be labelled high-risk for reasons ranging from previous problems with the sorting office in that area to your address being multiple occupancy.

Halifax says that it doesn't ask customers to collect cards from its branches because of the 'sheer logistics of 1.2 million card holders visiting the branches' and 'that it is customer preference not to'.

Fair enough, but it does not explain why card issuers don't all send out de-activated cards. This means your card has a sticker on it telling you to call a free phone number and spend a short time verifying a few pieces of information about yourself before it can be used. Issuers such as Egg, MBNA, Capital One, IF and Marks & Spencer use this method, but many others, largely the big banks such as HSBC and Barclays, do not.

HSBC argues that because it has an existing relationship with most of its credit card customers (the majority are current account holders), it does not feel it necessary to send cards out de-activated because customers' addresses have already been deemed 'safe'. It also says, as do other lenders, that it's a 'customer convenience thing'. Customers of Sainsbury's Bank and Halifax have to activate a new card or a replacement for a stolen card, but not a replacement for an expired card. Quinn says that not only is there 'not much customer demand for activation', but issuers had trouble with customers not removing the stickers on their cards before putting them in an ATM, causing problems with the machine.

Anyone who has successfully received their new chip and pin card and tried to use it in a shop without knowing the pin may have been pleasantly surprised to discover that most retailers are happy to override the system and accept a signature. The industry has not decided whether the 'fall-back' service (the ability to override the system with signature authorisation) will be switched off.

'If we do decide to switch off the fall-back, we need to make sure everybody knows and need to give people time to prepare themselves to feel more relaxed about it,' says Quinn. 'There is going to be a lot of discussion about this in the next two months but it's not going to happen by the end of the year because that will cause problems in the middle of Christmas buying.'

Phishing, where fraudsters dupe cardholders into revealing their personal security information by pretending to be their bank or credit card company, cost the industry £12m in 2004.

At the moment all customer losses through fraud - beyond the first £50 - are covered by the banks. However phishing losses are now being reviewed on a 'case by case basis' according to Quinn.

'What we have always said is that banks will publish guarantees to cover losses, but there is a growing concern that customers are being rather too easily duped,' she says. 'So far, we don't know anyone whose losses have not been met, but have heard of one bank which had a customer who was duped twice, despite being warned about how to avoid this. If you fall for it time and time again after being advised, it could happen that the bank will refuse to cover any losses.'