Chips down for credit card fraud

The chip card conversion will cost ¿300m

A massive programme to replace conventional credit cards with new microchipped "smart" cards begins this April in an attempt by UK banks and credit groups to stamp out fraud.

Plastic card fraud has grown annually by 20% over the last four years and could cost business as much as £300m per year by 2002, according to management consultancy group OSI.

In an effort to combat this, members of the Association for Payment Clearing Services (APACS) - which includes all major banks and credit companies - will begin to implement smart card technology from next month.

OSI said the process, involving an estimated 100 million debit and credit cards, will take approximately five years to complete at a cost of about £300m.

Conventional magnetic strip cards, which are relatively easy to counterfeit, will be phased out in favour of cards incorporating microchip technology.

PIN purchases

The new cards will employ sophisticated encryption systems that are very difficult to corrupt.

The UK's 24,000 automatic teller machines (ATMs) will also have to be upgraded to cope, with banks expecting to have at least half converted by this June.

In addition, OSI is trying to encourage retailers to take advantage of the new smart cards by adopting a system called Cardholder Verification Method (CVM).

This allows purchases made with the cards to be verified through a personal identification number, or PIN, making transactions even more secure.

First major conversion

Other spin-off benefits include "loyalty" programmes for banks and credit groups and electronic services like ticketing.

OSI's Director John Bragg believes credit card fraud could be cut by as much as half within five years if banks, retailers and credit card groups move together to take advantage of the new technology.

Smart card systems have been available for a number of years but British firms have been slow to adopt them.

The APAC's conversion will be the first major implementation of the new technology anywhere in the world and was "field tested" last July with 120,000 cards in Northampton and Dunfermline.

It will comply with the Europay, Mastercard, Visa (EMV) world standard.