Barclays is sending out chip and PIN terminals to more than half a million of its online banking customers.
Customers using their online banking account to set up payments to third-party accounts will be sent a standalone terminal to use their card's PIN to authenticate their identity, instead of having to use passwords.
Barnaby Davis, director of electronic banking at Barclays: "Barclays believes this is the most effective form of two-factor authentication, built on what was a very successful implementation of chip and PIN at point of sale in shops last year."
Davis added: "It gives customers an easy-to-use, familiar method that they can adjust very quickly to."
The "PINsentry" device (pictured below) works in much the same way as a chip and PIN terminal in a shop - the user places the card into the reader and taps in the PIN, which then generates a one-time password that is checked at the bank's end.
Only customers who use their online bank account to set up payments to a new third-party account — an account that is not a standard supplier (such as a utility or credit card company) — will be sent the chip and PIN devices.
Customers will automatically be sent the standalone chip and PIN card readers for free from the second half of this year, with the rollout due to be completed by November 2007.
Davis said the users setting up third-party transactions have been targeted because, if a fraudster gets hold of a customer's bank details, for example from a phishing email, then there is very little the crook can do, unless they can pay money to another fraudster or fraudulent account.
Davis added: "For protecting the customer, the key transaction to protect is the setting up of new third-party payments."
Barclays' customers who only use online banking to view their accounts and transfer money to established payees will not be sent the chip and PIN devices and can continue using online banking as normal.
The chip and PIN devices are a "solution for everyone", Davis added, and will work in conjunction with other security measures — such as antivirus software, text-message alerting and the transaction profiling that goes on behind the scenes.
Barclays is the first organisation in the UK to roll out chip and PIN terminals to its customers, and already offers an SMS text-alert payment confirmation system and anti-keystroke logging technology to combat potential fraud.
The Barclays PINsentry device