The warning, from analyst firm Butler Group, came as the first chip and Pin "barometer" report of 2004 revealed that 100,000 UK businesses already accept Pin authentication on card payments and that one in six cardholders has a chipped card.
Chip and Pin, the £1.1bn initiative, which aims to cut card fraud by 60%, is due to be implemented nationwide by the end of 2004. From 1 January 2005 liability for the cost of fraudulent transactions will pass from the card issuer to retailers if they are not equipped with chip and Pin payment systems.
The top 25 retailers, which can afford system upgrades and stand to lose the most from the liability change, and the smallest, which rent point of sale terminals from banks, are all expected to meet the deadline.
However, many of the 10,000 second tier retailers in the UK feel they cannot afford or justify the cost of replacing systems earlier than they had planned. This leaves every transaction exposed to risk, warned Andy Kellett, senior research analyst at Butler Group.
"Because the high-profile suppliers and the small targets at the bottom of the market have been removed from the easy reach of the common fraudster, there will be a natural gravitation to pushing fraudulent transactions towards those that continue to run older, exposed systems," he said.
"Chip and Pin deployment is likely to bring with it a new retail underclass. For the sake of your organisation's future wealth and sustainability, this is a group you should not consider joining."
However, there are supply problems for both chip and Pin-enabled terminals and standard point of sale systems, according to Lehane Kellett, head of technical consulting at retail IT consultancy PMC.
"Retailers are hoping the price is going to go down and that supply problems will go away. This is not going to happen," he said.