Aimed at small business owners such as plumbers, electricians and market traders, the system will be piloted during the second half of the year ahead of a planned launch before Christmas.

Merchants download an application onto their smart phone which acts as a virtual till - allowing them to enter a payment amount or pick from a price list of their products and services. They can also add a discount or apply loyalty features before completing the transaction.

The app then interacts with a small Chip and PIN device which enables the customer to enter their card and number. The cardholder will have the option to receive their receipt electronically via SMS and e-mail.



As well as processing card payments the app will allow the merchant to log any cash or cheque transactions to help with end-of-day reporting. The log will also allow them to view transactions over a wider period, for example the past week, month or year.

Paul Cook, MD, global payment acceptance, Barclaycard, says: "We understand how important convenient, widely accepted and guaranteed payment is to small businesses and also how mobile phones play an integral role in their life and their business. Developing a service which brings mobile and electronic card payments together in a simple compact solution illustrates how Barclaycard continues to develop innovations that make our customers lives easier."

In the US, Twitter co-founder Jack Dorsey recently unveiled Square, a similar system to turn mobile phones into payment card readers. However, Square requires customers to swipe their cards and 'write' their signature rather than enter their PIN. VeriFone has also launched a similar product.