Banks waking up to use of 'chip-and-PIN' against card frauds

Banks have only just begun examining the use of chip-and-PIN technology in credit cards to safeguard customer accounts, although the security measure has cut fraud by more than 30 per cent in some countries.

The technology works by encrypting customer details inside a microchip in the credit card. When a user enters his personal identification number, the details are verified and the transaction allowed.

This system is designed to add another level of security on top of the traditional signature verifying purchases. Data on the chips is also nearly impossible to duplicate, as opposed to when the information is on credit cards' magnetic strips.

Hong Kong police are strongly supportive of introducing the system, concerned that international fraudsters will use the city for illegal transactions as chip-and-PIN becomes standard in the rest of the world.

Britain has used the system since the end of 2004. It was also introduced in Ireland in March this year, and Canada is taking steps to adopt it.

In the first year of operation in Britain, credit card fraud fell by 30 per cent.

But there has been criticism. A report released this month found that credit card fraud in Britain actually jumped 26 per cent in the first half of the year as criminals used stolen cards and fraudulently obtained details to make purchases overseas to avoid the security system. Most of the fraudulent purchases took place in the US, which does not have chip-and-PIN in place for credit cards.