Lloyds TSB is to test the practicalities of using smart tokens to secure its online banking services as part of the largest trial of the technology conducted in the UK.
The bank plans to issue 30,000 customers with keyring-sized devices that will give them secure access to online accounts through a one-use passcode. The system will be tested for six months.
The technology is designed to protect customers against phishing e-mails and Trojan attacks, which attempt to obtain account holders' log-in names and passwords.
"Fraudsters are becoming increasingly cunning with their tactics, and there is no hiding the fact that fraud is on the increase," said Matthew Timms, internet banking director at Lloyds TSB.
The trial will give Lloyds TSB the option of rolling out a two-factor security system before the banking industry finalises work on standards for two-factor systems based on chip and Pin cards.
"We have made excellent progress on agreeing a set of standards on how card readers will be deployed, but there is a lot more work to be done," said Timms. "It will be at least a year before it is ready, although there may be trials before then."
The cards, supplied by Vasco, will cost Lloyds TSB between £2 and £5 each. If fraud losses increase, there could be a business case for issuing them to all customers, said Timms.
The trial will allow the bank to assess how customers respond to the technology and to assess its impact on phishing fraud, which cost banks £12m in 2004.