A new payments system due to be introduced in 2005 to combat credit card fraud could also hit many local firms in the pocket, the South West division of the Association of Chartered Certified Accountants (ACCA) has warned.

The new system, dubbed Chip and PIN, will mean that signatures are replaced with a four-digit personal identification number (PIN).

When paying, customers will type in their individual PIN on a number pad at the till.

The "hacker-proof" technology will then compare it with the PIN stored on a microchip embedded in the card.

But from January 1 next year, a change in card issuers' rules will mean that retailers become liable for losses where a Chip and PIN card is used fraudulently at a terminal that is not Chip and PIN-enabled.

Richard Houghton, ACCA spokesperson for the South West, said: "It is vital that all businesses which accept credit and debit cards understand the implications of this liability shift.

"If businesses have complied with card issuers' instructions and cardholders have been successfully authenticated, then retailers will not be liable if a transaction is later found to be fraudulent.

"However, those retailers who choose not to adopt the Chip and PIN system will be held responsible and, as a result, are likely to become the focus of attention of credit card fraudsters."

Payments made using a credit or debit card when the cardholder is not present are not affected by Chip and PIN and therefore are exempt from the liability shift.

Credit card fraud in the UK amounted to a massive £424 million in 2002.

Added Mr Houghton: "The Chip and PIN programme is seen as the biggest change in the way we pay since decimalisation in 1971.

"It is estimated that a smaller business may be able to implement Chip and PIN fully in a matter of weeks.

"For larger organisations with more complicated payment facilities, the process is likely to take around six months."

The UK Chip and PIN programme began the first phase of a national roll-out in May 2003 when it was trialled in Northampton.

By the end of the three-month trial, more than 200,000 PIN enabled credit and debit cards had been issued and more than 1,000 outlets, which included shops, restaurants, pubs, hotels and petrol stations took part.