High-street bank Barclays is to issue handheld card readers to its 1.6 million active online banking customers to tighten security and combat identity theft.

The firm will provide the standalone calculator-sized two-factor authentication devices in 2007.

They will be based on card readers developed by banking industry body Apacs to reduce card-not-present fraud, which increased by 21 per cent last year and cost banks £183.2m.

The devices will read chips on debit cards and provide customers with a one-time password that will be required to enter the internet banking portal.

Barnaby Davis, director of online banking at Barclays, says the bank wants all its customers to benefit from increased security.

‘We plan to issue the card readers to all online banking customers and not just business customers,’ Davis told Computing.

‘We have gone for this two-factor model because it resists all known methods of fraud,’ he said.

Other banks have been working on two-factor authentication, but not all have adhered to the Apacs standard. Lloyds TSB, for example, is testing keyring-based, one-time password generating devices with 23,500 customers.

Alliance & Leicester became the first UK bank to issue all of its one million online banking customers with free, two-factor authentication technology in March (Computing, 16 March).

‘We’re aware other companies are planning something similar, but we believe this will become the industry standard,’ said Davis.

He declined to comment on how much it will cost to issue the devices, but says customers will not have to foot the bill.

Apacs says it welcomes Barclays’ decision to provide customers with two-factor authentication, provided the devices adhere to its standard.

‘We have been involved in the development of this system so we know the benefits of it,’ said an Apacs spokesman.

Graham Titterington, prinicipal analyst at Ovum, says tight online security will become a differentiator in the banking sector.

‘Online banking now has so much momentum that if Barclays does not provide this service someone else will,’ he said. ‘You have to compare the cost of issuing readers with the cost of providing manual banking services, or indeed the cost of fraud.’