In its report following an inquiry into the payments system in Australia, the parliamentary committee has called for all mag-stripe cards to be replaced with chip-based cards and the introduction of PIN-based authorisations for credit cards. The committee also wants customers to be given chip-based eftpos cards that can be used for Internet purchases.

Says the report: "The committee considers that a move to PIN-based authorisation would be highly desirable in terms of fraud prevention. In addition, PIN-based authorisation would ensure that Australians' credit cards remain functional in overseas markets where PIN-based authorisation has been adopted.

The committee found Australia has fallen behind in implementing safety measures to protect against payment card fraud.

The proposals follow calls earlier this year from the head of the Australian Federal Police (AFP) for banks in the country to speed up the introduction of chip and PIN technology.

AFP Commissioner Mick Keelty warned banks that the continuing use of magentic stripe cards has left Australia more vulnerable to identity fraud than most parts of Asia, Europe and the US.

The parliamentary inquiry also rejected bank claims that the reason credit card safety features had not been updated was because they were getting less revenue in so-called interchange fees from merchants following the Reserve Bank of Australia's (RBA) move in 2002 to cut the fees charged to merchants.

"The committee does not accept this proposition. In the US, technology is even further behind but interchange revenues are three times as high. Conversely, technology is more advanced in some debit systems where interchange fees are zero," says the report.

The committee backed RBA's move to cut the interchange fees, stating that the "benefits of the reform, at this point, outweigh any alleged disadvantages".