Card fraud up 26pc despite chip and PIN

Total card fraud in the first six months of this year rose to £263.6million, while theft involving cloned cards overseas leapt 126 per cent to £108.8million.

While the new system has marginally cut card crime within the UK, its introduction last year made it easier for criminals to use fake cards in cash machines abroad.

This is because its widespread use has increased opportunities to steal the four-digit PIN codes, and because machines overseas do not have to read the unique microchip embedded in the card.

Criminal gangs use bugging devices on till terminals to capture the magnetic stripe information on debit and credit cards, plus the PIN codes. Cloned cards have been used in Pakistan, India, Sri Lanka, the U.S., Spain, Canada, Sweden, Romania, Italy, Argentina, Brazil, Malta, and Morrocco.

Most of the money has fuelled organised crime empires involved in drugs, guns, illegal immigration and prostitution. Some is believed to have been diverted to terrorist groups.

Professor Ross Anderson, from the Cambridge University Computer Lab, said: 'The banks' claim that the chip and PIN system is secure are completely bogus. It has not delivered the security that was promised. It has simply led to a change in tactics.'

He believes the true scale of the fraud is much bigger than the banks are admitting, because the figures do not cover cases where banks have forced customers and retailers to carry the cost of theft. Full implementation of chip and PIN in February last year replaced signatures for authorising card purchases. Instead, the four-digit PIN – personal identification number – is now used, keyed in by the customer at a terminal in a retail outlet. Installing terminals cost more than £1billion, a bill passed on to consumers.

However, while the regime has reduced UK card fraud – it is down four per cent to £154.8million – it has fuelled a dramatic increase overseas. Before chip and PIN, a criminal gang could steal a card or use a scanner to capture the information on the magnetic stripe in order to make a counterfeit. These copycat cards could be used for purchases via the Internet – or in stores overseas using a bogus signature. But the thieves did not know the PIN, and so the cards could not be used in cash machines.

Under the new regime, people use their PIN most days of the week at 450,000 outlets – increasing the opportunities for criminals to capture magnetic stripe information and PINs. The fake cards will not work in the UK because the machines here check for the presence of the microchip on the card.

However, machines in other countries work on the basis of the magnetic stripe and so do not reject the clones.

The Association for Payment Clearing Services collects and reports card fraud data for the banks. Its communications chief, Sandra Quinn, said: 'These figures show how the fraudsters have changed tack.

'A couple of years ago, they were mainly stealing cards and card details for use in UK shops and cash machines. But today, because of chip and PIN, they have been driven overseas – using fake magnetic stripe cards in countries which have yet to upgrade to chip and PIN.

'In the interim, we will continue to use fraud intelligence systems to tackle overseas losses and encourage those countries that are lagging behind on chip and PIN to follow our lead.'