Certain sites (e.g. banks like Halifax and Barclaycard) will prompt the user for specific letters of their password. But if the user's password is salted and hashed then I can't see how the individual letters can be used. So either the password is not hashed or there is another process at play. Possibly each individual letter of the password is salted and hashed, but that doesn't seem particularly secure.
Can anyone explain what authentication model is being used here? Given that this is fairly common place, I must assume that there is a trusted model to support this practice.
Edit: The best answer I have found is actually on security.stackexchange.com 'How do some sites (e.g. online banks) only ask for specific characters from a password without storing it as plaintext?' so I will also vote to close my question.