Chip and pin is an antifraud measure that is gradually being introduced in Australia, with all debit cards having them by 2015.

It involves a card having a chip put in as well as the metallic stripe on the other side of the card.  The chip allows a specialised computer to read the chip and so a large amount of data can now be stored on the card and this can include the chip number that can activate the card as well as the spending limit and whether the issuing bank needs to be contacted.

Chip and pin can be used in all in person to person transactions.  It is designed to combat fraud and has been used very effectively in the UK where it is almost universal.  Under other names it has been used in different countries, particularly France.  There has been a sharp fall in card fraud, which in some places has been as much as an 80% fall.

It is far harder for a fraudster to bypass the chip and pin system than it is to bypass the old system of using signatures.  Signatures relied very heavily on shop staff to spot what could be tiny differences in signatures, especially when signatures can be endlessly practiced.  It is now necessary not just to get hold of the card but also the pin numbers.

One of the ways in which card companies have used to further reduce fraud has been to send out the pin number separately from the card.  As well as reducing fraud this can add another level of inconvenience as pin numbers get forgotten before the card arrives.

Until recently it was very rare for cards to have pin numbers.  Card numbers were only required if the card was used in another country, particularly the UK, or if it was used to withdraw money.  With the growth of dual use numbers that can be used both for ATMs and debit card terminals, this has not been such an issue.

One frequent problem had been that the numbers were written down with the cards.  As would be expected this increased the incidence of card fraud.  When pin numbers are written down the debit card provider will often refuse to make good any losses from theft or fraud.  The debit card issuers can sometimes believe that the burden of proof falls on the taxpayer.

Chip and pin is unable to be used to secure internet transactions.   There have been experiments to have portable card readers, although these are currently in their earlier stages.