Smart cards tackle fraud

The Days when shoppers who use cheque books are regarded as out- of-date eccentrics can't be far away. The pounds 85bn spent by British consumers on their credit and debit cards during 1996 represented nearly one-third of our total high street spending.

Add in cash cards, cheque guarantee and charge cards, and there are more than 90 million pieces of plastic in circulation in the UK, according to the Credit Card Research Group.

But what can be convenient to use can be just as convenient to misuse. Plastic fraud is a continuing problem and the cards do not always have to go missing. In some cases criminals have transferred details to other pieces of plastic and cardholders have not noticed anything until the arrival of their monthly statement.

This has been a particular problem for customers of restaurants in the Far East. Waiters have been known to take sophisticated copies of cards when diners are paying their bills. In the UK, counterfeiters have been demonstrating similar imagination. Last year one gang was jailed for using high-definition video cameras to obtain card and PIN numbers from cardholders at cashpoints. Another was imprisoned for obtaining card details by looking over people's shoulders.

An industry-wide solution to the problem of counterfeiting does, however, appear to be in the pipeline. The Association for Payment Clearing Services (Apacs) has been working with international card issues to develop a new type of plastic card identifiable by an in-built computer chip. If trials conducted later this year are successful, the format should be available for credit, debit and cash cards from mid-1999 onwards.

But counterfeiting, although on the increase, still accounts for only around 10 per cent of fraud. Most problems involve theft.

Total UK plastic card fraud losses reported by banks and building societies amounted to pounds 165m in 1992, although by 1995

the figure had fallen to pounds 83m - despite a 70 per cent increase in the number of plastic card transactions. Figures for 1996 may, however, show a modest upturn.

The methods used by the banks and building societies to detect stolen cards have become much more sophisticated. Spending patterns of cardholders are sometimes monitored so stolen cards can be spotted before their owners notice they are missing. Retailers have limits above which transactions must authorised by processing centres to ensure there are sufficient funds in an account and that a card is not stolen. Several high-value transactions made with a card that is used infrequently could result in an issuer instructing a retailer to check the bearer's identity. Even when purchases are made within transaction limits, cards are sometimes still automatically checked against "hot card" lists when they are swiped through electronic point- of-sale machines.

Issuers have also been improving their methods of distributing new cards, but they are reluctant to discuss the details.

Where such safeguards against fraudulent activity prove inadequate, cardholders should be well protected by law. It is the card issuer that generally faces the bulk of the cost. The industry-wide maximum that a cardholder can normally lose is pounds 50 and with some card issuers it is even less. American Express, for example, deducts only pounds 20. Furthermore, such charges are often waived. They exist primarily as incentives to ensure that cardholders act responsibly and contact their issuer promptly after they notice their card is missing.

That said, with cash cards, your bank might be less sympathetic if you kept a record of the pin number with your lost card or if you disclosed the pin number to someone. In such cases the Banking Ombudsman (phone 0345 660902) may be able to help.

If plastic card issuers are informed immediately a fraud has been detected they will often be able to readjust an account and issue a new card within days. If a case requires detailed investigation, the matter should still get sorted out within a few weeks. Cardholders should contact their issuer even if they aren't entirely certain that a card has been stolen or misused.

"Even if you suspect you might find your card again, you should tell your card issuer and they should send you a new card within a few days," says Richard Tyson-Davies, spokesman for Apacs. "They would prefer to do this than take the risk of undergoing a fraudulent loss."

It is also possible to make life more difficult for card thieves by using a card bearing your photograph. The Royal Bank of Scotland is the only organisation to offer such a facility, which is free. (National & Provincial building society stopped offering this service when it merged with Abbey National last August.)

RBS, which has 350,000 photo-card holders for its Highline multi-function card and a further 130,000 for its credit card, claims to have prevented pounds 1m in fraud by putting photos on its plastic.

A photograph, however, provides little protection when there is no face- to-face contact: cardholders are strongly advised not to give out card details when they receive unsolicited phone calls from companies they have never heard of.

Telephone and mail order transactions, where the retailer doesn't actually see the card, are one of the three main areas bucking the generally improving trend on fraud. Counterfeit cards and UK cards used fraudulently abroad are the others.