Chip-and-PIN card security easily bypassed

Perhaps criminals have known about this for a long time, but security researchers have just announced the discovery of fundamental problems with the security of so-called Chip-and-PIN cards.
 

VISA pilots credit card with integrated PIN keypad

The Bank of America in the UK is amongst the first to pilot a new VISA credit card with an integrated PIN pad and one-time security code system for Internet transactions. So how does that work then?