Cost of card fraud soars to £535m as Chip and Pin drives criminals to plot new schemes

The cost of credit and debit card fraud soared to a record high of £535million last year, the latest crime figures revealed yesterday.

The British Crime Survey raised grave concerns that the introduction of Chip and Pin technology has simply driven criminals to use new methods.

Use of counterfeit cards  -  where a real card is 'skimmed' and cloned by fraudsters  -  rocketed by 46 per cent to £144million. This was up from £98million the previous year.

The skimmed cards are mostly used to withdraw cash from machines in foreign countries. Unlike UK machines, these do not check for a unique microchip.

Criminal gangs use high-tech bugging devices on till terminals at petrol stations and other outlets to capture the magnetic strip information on cards, along with their Pin codes.

Cloned cards are then used at cash machines in Pakistan, India, Sri Lanka, the U.S., Spain and around the world.

The figures released yesterday showed that fraudulent use of cards at British tills  -  where Chip and Pin was supposed to stamp out crime  -  crept up slightly last year.

It had dropped significantly from £135million in 2005 to £72million in 2006, when shops adopted the technology widely.

However, last year it rose again to £73million. Chip and Pin technology was trialled in Britain from 2004 and rolled out fully by the beginning of last year.

Because customers must enter their personal four-digit Pin at the till, the system was hailed as the solution to card fraud.

It was hoped it would make it virtually impossible for criminals to use stolen cards.

But the latest figures suggest the system has failed dismally to live up to expectations, and that criminal gangs are bypassing the supposedly foolproof safeguards.

More worryingly, industry experts believe that the expansion of Chip and Pin has actually made some types of fraud easier.

Whereas in the past, people would only use their Pin at a bank cash machine, they now use it at tens of thousands of tills across the country, increasing the opportunity for it to be stolen.

Professor Ross Anderson from Cambridge University has been highly critical of the Chip and Pin security regime.

He has demonstrated that it is possible to build a bugging device to capture card details, including the Pin, for a few hundred pounds with parts bought over the internet.

He said: 'Chip and Pin has not delivered the security that was promised. It has simply led to a change in tactics.'

'Card not present' fraud  -  where criminals use a stolen or cloned card to buy goods over the internet or telephone  -  is the most common type of offence. It leapt by 37 per cent to £290million last year, having more than doubled in four years.

Home Office officials warned that the rise in card crime was being driven by the increase in telephone and internet-based shopping.

But Opposition MPs accused the Home Office of making life harder for fraud victims with new rules preventing them from reporting card crimes direct to police. Instead, they must inform banks who then decide whether to take the matter further.

Card ID theft  -  where a criminal uses stolen personal data to open or take over an account  -  rose to £34million last year.

Police minister Tony McNulty acknowledged that the Government would have to look more closely at the issues surrounding card fraud.

He said the Government was spending £29million on a national card fraud reporting centre and was working closely with City banks to crack down on the growing problem.