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The cash machine network Link will provide the service to the Post Office using encryption technology from electronics and IT services provider Thales, with which it has signed an initial three-year contract. Link will process the Post Office transactions over its ATM network.
The Post Office launched its basic banking services last year as part of a move by the government to pay benefit payments directly into claimants' bank accounts electronically.
The encryption technology will be used to receive and process about one million electronic transactions each month from the Post Office, which provides a basic banking service at its branches.
The technology encrypts all the IP data on the Link network using a 3DES algorithm, in what a Link spokesman described as a "belt-and-braces" approach to security.
Post Office Counters' IT is run by Fujitsu Services, formerly ICL, under a £650m contract which will run until 2010.
An earlier attempt by the Post Office to modernise the benefits payment cost the taxpayer about £1bn when it ended in failure.
A National Audit Office report on the project cited divided leadership and insufficient attention to technical details as contributing to the collapse of the project.