Barclays Bank has issued credit card readers to 5,000 of its Barclaycard customers in a trial of secure online transactions.
The six-month pilot to secure online and telephone transactions follows successful internal trials over the last few months to combat the growing problem of card-not-present fraud, which accounts for around 40 per cent of all credit card losses.
The system combines a small stand-alone card reader device developed by nCipher, Barclays OneSmart chip and Pin cards and MasterCard's online SecureCode e-commerce security.
When shopping online or over the phone users slot their chip and Pin card into the reader and tap in their Pin to generate a one-off password.
They then enter this password into a pop-up window on the web page or over the phone to sales staff. The password is then authenticated by Barclays.
Using current chip and Pin cards has a number of other advantages, according to MasterCard. Banks will not have to make extra technology investments because they are already rolling out chip and Pin cards, and card readers, which are expected to be given free to customers, will only cost banks $5 to $10 each.
As both MasterCard and Visa have developed security to tackle card-not-present fraud, card readers are expected to be able to cover both standards.
Ron Carter, nCipher's payments product manager, said the nCipher card reader can in theory read both types of card.
"MasterCard have got to market a bit ahead of Visa because they have issued the necessary specifications to the banks. I don't expect Visa's to be that different and I would be very surprised if you would need two different types of card reader," he said.
Barclays Bank said it chose MasterCard's SecureCode for the trial because more than 2,511 card issuers and 123 merchant acquiring banks, including WorldPay, have also signed up.
The bank said the trial would show whether customers like the idea of card readers and would iron out any glitches.
But a Barclays spokesman added: "We have no plans for a nationwide rollout at the end of the trial as yet."
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