Over half a million Barclays bank customers will be the first UK banking customers to be issued with handheld chip-and-PIN readers later this year to improve online security and combat identity theft.

The bank will provide standalone calculator-size two-factor authentication card readers to customers transacting online with third parties.

The bank will supply card readers to half a million of its two million online banking customers.

The devices read the chips on customers’ bank cards and provide a one-time password required to enter the online banking portal.

Raimund Genes, chief technology officer of internet security firm Trend Micro, says banks have to consider safeguards such as biometrics and smart card because consumer confidence in online banking has been waning.

He says the banking industry cannot afford the losses anymore says Genes.

'We also need the Government to stand up and take notice and push for E-identity to ensure proper user authentication,' said Genes.