Credit cards to get chips

A NEW generation of credit and debit cards with built-in chips will replace the 100 million "black stripe" cards over the next three years, in a pounds 303m project to tackle fraud.

Eventually the cards could be so closely tied to their owners that only the correct fingerprint, signature or iris details would make them work - making fraud by mechanical means almost impossible.

From next month, the major banks and credit cards will begin issuing "smart cards" containing their own processor chip and memory able to store the equivalent of 1,300 words of text. Though their processing power is comparable with thecomputers of the 1970s, each will cost the banks just pounds 1.

Initially they will simply hold a PIN, or pass number, with the cardholder's account number, but the Association for Payment Clearing Services (Apacs), which is overseeing distribution, is considering putting "biometric" details on the cards.

The new cards are expected to bring a rapid reduction in fraud, which in 1997 cost pounds 177m and would rise to pounds 304m by 2002 if the technology was not introduced, according to OSI, an independent management consulting company.

John Bragg, director of OSI, said: "Banks and retailers should move in tandem to convert to the chip cards. They could halve the fraud rate in five years if they moved quickly."

Richard Tyson-Davies, a spokesman for Apacs, said: "Cutting fraud is the principal reason for introducing the cards, but they could also be used for electronic commerce, loyalty schemes, and electronic purses where the cards actually hold cash in electronic form." Visa International is presently holding trials with such a system.

Currently most credit card fraud involves "skimming", in which copies of cards are made using the data from the magnetic stripe. Because the card is new, the signature can be that of the counterfeiter.