The deal, approved by Transport for London (TfL), will see the development of a new card that will feature Oyster and Barclaycard Visa on one piece of plastic.

Barclaycard has signed an agreement with TranSys - which is a consortium which runs the widely used Oyster card - that will allow it to add the pre-paid Oyster card function to its debit and credit cards. The deal gives Barclaycard the exclusive rights to place Oyster on its Visa cards for at least the next three years.

The new card will have a standard chip and PIN payment function, along with Oyster card functionality and Visa's 'wave and pay' contactless payment technology for low value transactions in participating shops.

Jay Walder, TfL's managing director for finance and planning, comments: "Bringing together Oyster with the Visa 'wave and pay' function on a single card will allow customers to pay for low cost items such as coffee and newspapers quickly and securely while getting from A to B throughout London."

Barclaycard, in conjunction with TfL, TranSys and Visa, will be conducting a live trial in London in 2007 and plans to roll out the technology to its customers later in the year.

Commenting on the deal, Barclaycard chief executive, Antony Jenkins, says: "Putting Oyster and Barclaycard together makes life even easier for Londoners and takes our customers an important step closer to fully contactless card payments elsewhere."

Mayor of London Ken Livingstone says: "This new deal will mean that from next year people can buy low-cost items and take advantage of Oyster fares on the same card, reducing the need to carry cash."

TfL originally said in March 2005 that it was looking to add payments functions to the pre-pay Oyster card to enable customers in the capital to use the contactless transit passes to pay for low-value purchases at retail stores. However, this initial programme fell through after the company failed to agree technical and financial terms with potential partners.