HIGH street banks are to introduce new anti-fraud systems to stem the growing tide of internet crime sparked by the introduction of chip-and-pin technology, writes Yuba Bessaoud.

Under a scheme being developed by the Apacs payment network, bank customers using the internet will be given hand-held terminals that generate a different eight-digit code for each transaction. Customers can only gain access to their online account with this code.

Although the technology will initially be used by online (and phone) bank customers, Apacs hopes it can later be extended to purchases on retail websites.

Figures from Apacs, which groups together banks and card firms, show 26.6m people made at least one internet purchase last year, spending £22 billion. In addition, 15m customers regularly carry out banking transactions online.

Chip and pin helped cut card fraud by 13% to £439m last year from a 2004 high of £504m. Now, however, so-called “card not present” fraud, which consists mainly of internet scams, has risen 21% to £183m.

The urgency of curbing internet fraud was highlighted last week when The Sunday Times reported how Russian gangsters are selling credit card details, pin numbers and personal information of British customers over the internet for just £1 a time.

“Chip and pin was brought in to deal with counterfeit and lost and stolen card fraud, it wasn’t introduced to tackle card-not-present fraud. What the industry is doing now is looking at ways to utilise chip and pin technology in an online environment,” said a spokesman for Apacs.

The new system, called two-factor authentication, involves each customer being given a hand-held chip-and-pin terminal. Each time they carry out a transaction, they slot their card into the machine and enter their pin number.

The device then produces an eight-digit number that must be entered into the website before any financial transaction can be carried out. The code is matched against a constantly changing bank database after which it becomes defunct, meaning any fraudster intercepting the transaction would find only a meaningless number.

Any potential cost to customers would be decided by the individual banks, depending on overheads, take-up rates and inter-bank competition.

The scheme, which it is hoped will become an industry standard, is based on trials carried out by individual banks such as Lloyds TSB and Barclays. Lloyds TSB issued 23,500 customers with an “access code device” in 2005. During the trial, none of the customers reported fraud on their account, the bank says.

Some critics have expressed concern the system may not be completely fraud-proof — for example, skilled hackers may be able to intercept the code and link it to a card in the short time before it is discarded.

If it works for online banking, Apacs will begin negotiating with retail websites to adopt it.

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