The Association for Payment Clearing Services (APACS), which represents the major UK banks and building societies, is launching a public trial of the PIN system, and aims to get all UK credit and debit card transactions authorised using this method by the end of 2005.
The move is aimed at cutting plastic card fraud, which is estimated to run at £1m a day in the UK.
Retailers and financial services companies have been working on a solution to plastic card fraud since 1995. However there have been arguments over who should bear the cost of a move to smartcards, which would require new point-of-sale equipment.
PwC Consulting will manage the implementation, which is estimated to cost £1.1bn over three years.
Richard Tyson-Davies, public affairs director of APACS, told CW360.com:"The decision to implement a PIN solution with the smartcard was the key to breaking the deadlock between the banks and retailers".
The precise allocation of costs is a matter between retailers and their banks, said Tyson-Davies.
Among the companies backing the scheme are Dixons, Esso, Marks and Spencer, Powerhouse, Sainsbury's and Tesco.