Roll out

The system got the go-ahead after Visa and Mastercard agreed on an industry standard for the technology they will use.

According to banking industry figures, there are more than 20 billion payments of £10 or less a year in the UK.

Apacs said that more than five million contactless cards are expected to be issued by the end of 2008, and they will be accepted in more than 100,000 outlets.

The companies that have signed up to the first phase of the programme are Royal Bank of Scotland, Halifax, Bank of Scotland, HSBC, Lloyds TSB, Barclaycard, Citi and Euroconex Technologies.

The contactless payment system will at first be used in a limited number of areas and locations.

From September, it will be available in seven London postcodes, running from the City financial district to Canary Wharf. The postcodes where the system will work are EC2, EC3, EC4, E1, E14, SE1 and SE16.

Hopping on

This sort of method of payment is nothing new for Londoners, many of whom already use the Oyster travel card, which allows them to get on buses and the Underground by touching the card to a special yellow reader pad.

Analysts said that the contactless system would be well suited to certain types of retailers and businesses, such as fast-food restaurants, newsagents, pubs, taxis, parking facilities and vending machines.