Britain's Barclays Bank is sending out hand-held chip and pin card readers to online banking customers in a new anti-fraud initiative.

More than half a million customers who use their online account to set up payments to new third party accounts will be sent free "Pinsentry" card readers by the end of the year, the bank said.

The devices will allow customers to authenticate their identity with their debit card and pin instead of pass-codes and memorable words when they log on to internet banking and again when they want to make certain payments.

Those who use online banking to view their accounts and pay bills or established payees will continue to use the service in the current way.

It is the latest in a series of Barclays initiatives to increase security for online banking customers.

Last year, it offered free anti-virus software and a text message confirmation service to online customers.

The news comes after Apacs, Britain's payments association, said it would try out the next generation of fraud prevention technology, designed to safeguard consumers when buying goods over the internet, by telephone or mail order.

The pilot scheme will see banks issue hand-held credit card readers to each customer.

When buying something remotely, consumers will place their card into the reader and type in their pin.

The reader will then generate a one-off passcode, which will be communicated to the retailer to verify the transaction.

Losses through many types of fraud are on a downward trend in Britain - card fraud losses declined 3 per cent to £428 million (€633 million) and cheque losses dropped by some 24 per cent to £30.6 million last year.

However, online banking losses have risen sharply, by 44 per cent to £33.5 million.