The Association of Payment Clearing Services (Apacs) has announced that it is testing new technology, which will enhance the security of online transactions and reduce card fraud.

The system, expected to go on trial this year, involves giving each bank customer a hand-held credit-card reader. The tool will generate a new one-time passcode, in the form of an eight-digit number, whenever the user carries out a transaction online or by telephone.

The customer will insert their card into the device and type in their PIN. The reader then generates a passcode which is inputted by the user when prompted by the bank, according to the payments organisation.

Apacs said that the new scheme will help tackle the growing number of fraudulent “remote” transactions, also known as “card not present” fraud.

“The UK is leading the way in identifying and developing technology to address card-related fraud,” said Sandra Quinn, director of corporate communications at Apacs. "We are fully committed to tackling card fraud in all its guises and will continue our work to enhance security across all types of payments.”

Mark Bowerman, PR Manager for Apacs, said: “It is very important that the industry takes all forms of payment fraud seriously. We are not currently embracing the chip and PIN technology in the ‘card not present’ environment, but this multi-layered initiative will definitely help tackle card fraud.”

However, he added: “No system is 100 per cent safe, but this scheme will certainly reduce the chances of you becoming a victim of card fraud.”

Apacs has yet to confirm any dates for the trial programme.

Yesterday marked the one year anniversary of the official changeover to Chip and PIN in the UK. Figures from Apacs show, that card fraud has fallen five per cent since the switch last year.