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Chip and PIN doesn't mean the end of the war on card fraud

The magnetic stripe under the spotlight
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By Dan Ilett

Published: Tuesday 7 February 2006

A Friday night drinking session had certainly not cost £500, Richard Wolfe thought when he opened his bank statement.

But his statement showed a big withdrawal from his bank account shortly after he'd been to a cash machine that weekend.

"It's really weird," said Wolfe who works for a London PR company. "I went to use a cash machine, put my card in and it jammed in the machine.
Where's fraud going to go? It's going to America. But the majority of the world is going to chip and PIN so that will cut down the options.

"I thought someone was trying to clone it but the machine said it couldn't read the card and spat it out."

It seems that someone had "skimmed" Wolfe's card by placing a cloning device on the cash machine, stealing the details from the magnetic stripe on the card as it was placed inside.

And while his bank, eventually refunded him the £500, he is still surprised that with chip and PIN technology in use this still happened.

"The fact d can use a chip and PIN card in a cash machine is quite amazing," he said.

Retailers are racing to get their tills chip and PIN compliant by 14 February. From that day on, if a non-chip and PIN card is used and the transaction turns out to be fraudulent then the retailer will have to swallow the cost, rather than the bank.

Figures from banking industry body Apacs suggest 99 per cent of all cardholders have at least one chip and PIN card and 2.85 billion PIN-verified transactions took place in 2005.

Statistics released from the group suggest that cash machine fraud has fallen by 22 per cent since chip and PIN was introduced last year and counterfeit, lost and stolen card fraud has fallen by 29 per cent (£36m).

So chip and PIN has made it tougher to rip off retailers - but it won't kill off all card fraud.

Martin McMillan, CEO of Level Four, a company that builds software and testing tools for ATMs, said: "Skimming is an altogether different but related problem."

"If you were to have a chip-only card, skimming would disappear. If you make it harder to commit fraud at the point of sale, it will migrate," he said.

"As long as you have a magnetic strip on the back of the card, it will be susceptible to skimming," he added.

A spokeswoman for Apacs said: "What we've never said is that it will cut all card fraud. Part of the business case for it is [that without chip and PIN] card fraud would have been £800m by the end of 2005. It was £500m by the end of 2004 but now it's less."

According to the spokeswoman, because the US has yet to roll out chip and PIN - and still relies on magnetic stripe technology - the likelihood is that card fraud will move to the US, or cloned US cards will move to the UK.

"The magnetic stripe has to be there or you can't use the card abroad," she said.

"Cards are international. Where's d going to go? It's going to America. But the majority of the world is going to chip and PIN so that will cut down the options."

David Porter, head of security for security and risk at consultancy Detica added: "For the foreseeable future cards will have the magnetic strip."

"It's going to be harder to counterfeit a chip and PIN card. Chip and Pin will cut down certain areas [of fraud] but it won't win the war.