Some forms of fraud in the EU rose by 50 percent last year, according to a European Commission report. The only answer is cards with chips, sasy the EC.

A large proportion of the increase concerns payments by phone and on the internet. Fraud with non-cash payment methods currently amounts to more than £377.5m, the report says.

In response to the revelation, the Commission, the EU's executive arm, on Monday announced an action plan to combat fraud. Part of the solution is to make all cards 'smart'.

The Commission will provide "clear and binding rules with adequate sanctions for those who break them" as well as helping to make better information exchange between companies.

"The scale of cross-border fraud means we need urgent action at a European and, indeed, international level," Frits Bolkestein, EU internal market commissioner, said in a statement summarising the report.

The Commission views cybercriminals as a serious threat since such activity has "grown rapidly". The report also notes that lack of confidence in the privacy and security of online payments continues to inhibit the growth of electronic commerce.

"Apart from the interception of data in payment transactions, the possibility of hackers collecting information out of website databases is cause for concern," the report said.

But the Commission said taking on the problem is primarily the responsibility of the payment systems industry.

Putting chips on credit and debit cards - something the banks have been building up to - is essential in cutting fraud, says the report. So-called smartcard technology should be all around us by mid-2002 at the latest.