The contactless system will be used as an alternative to low-values cash transactions of £10 or under. Customers will be able to pay for purchases by holding their upgraded card up to secure readers in participating retailers, outlets and vending machines.

Barclaycard, Citi, Bank of Scotland, Halifax, HSBC, Lloyds TSB, Royal Bank of Scotland and payment processor Euroconex Technologies will all participate in the first phase of the roll out, which will start with a London launch in select areas involving a mix of retailers and selected cardholders.

After the initial launch the initiative will expand across the capital city, followed by a gradual national upgrade in 2008. This will involve card issuers replacing some debit and credit cards and businesses upgrading technology.

In a statement, UK payments association Apacs says industry estimates suggest that over five million contactless cards will be issued by the end of 2008, and that they will be accepted in at least 100,000 merchants across the country.

There are currently in excess of 20 billion payments under £10 made in the UK, with a value of approximately £200 billion per year, says Apacs. Contactless technology will increase the likelihood of a card being used for small value transactions and increase the places where they are accepted – such as coffee shops, newsagents and in taxis.

John Bushby, general manager, UK, Republic of Ireland, Nordic and Baltic countries, MasterCard Europe says: "We are confident that consumers in the United Kingdom will be quick to adopt contactless payments as they are faster and more convenient than cash increasing both the number of cards in issue and, as retailers benefit too, places where they can be used."

Bushby says a pilot of MasterCard's PayPass technology at Royal Bank of Scotland's offices in Edinburgh and London, which was launched in June 2006, has shown that users "love the convenience, simplicity and security of being able to 'tap and go' when paying for everyday things such as newspapers, sandwiches and drinks".

Commenting on the roll out, Visa UK managing director Jose San Juan says: "By the autumn the first UK cardholders will be buying a coffee or a sandwich in a split second, and retailers will enjoy quicker transactions, the security of the payment guarantee and an end to the high costs associated with handling cash."

RBS says over 40,000 transactions have been made with contactless cards during the trials and feedback has been extremely positive.

Cards containing the contactless technology will feature a recognisable "ripple" symbol; consumers will be able to use the card at retailers – both in the UK and abroad – displaying the symbol.

Last week Barclaycard said it would begin rolling out a contactless payment card featuring Transport for London's Oyster pre-paid fare system to customers in September. The combined card features Visa's 'wave and pay' contactless payment technology, and will be used for low-value transactions.