A similar scheme in France has reduced fraud
The first public trial of new-style Pin credit and debit cards, which are aimed at tackling soaring card fraud, will start in May.
About 80,000 people living in Northampton will be taking part in the trial - and it will eventually be rolled out to the rest of the UK by 2005.
The £1.1bn initiative is aimed at beating the growing cost of credit card fraud, which new figures reveal cost £424.6m last year.
The new-style cards will add a layer of security which will benefit both banks and consumers, as purchases will need to be verified by keying in a four-digit Personal Identification Number (Pin), rather than signing receipts.
The banks and card issuers are also introducing cards which contain chips.
Card fraud hotspots
This is aimed at combating the growing problem of "skimming" - the most common method of counterfeit fraud.
The magnetic strip, seen on the back of cards, is copied by fraudsters, using a handheld card reader.
The card can then be "cloned".
Banks hope the new Chip and Pin technology will more than halve credit and debit card fraud
in the UK.
The UK is the first country to introduce chips on cards which meet a new global standard known as EMV, which standards for Europay/MasterCard and Visa.
In the future, more countries are expected to adopt the same standard which will make card use abroad safer for British consumers.
A similar domestic Pin-based system in France was introduced ten years ago, and has been very successful.
Chip and Pin, the organisation leading the roll-out, said Northampton had been chosen for the pilot because of it was "representative of the UK as a whole".
This is a turning point in the fight against plastic card crime in the UK
Half of Northampton's 161,000 residents will be contacted by their banks over the next few weeks, if they have been chosen to take part in the pilot.
Banks including Lloyds TSB, Royal Bank of Scotland, Barclays, HSBC, Egg and the Co-operative bank are among those taking part in the pilot.
Retailers such as Asda, Next, Marks & Spencer, McDonald's, Tie-Rack and Tesco are among the retailers who will be accepting them.
Chris Pearson, Chief Executive of Apacs, said: "This is a turning point in the fight against plastic card crime in the UK.
More than £1m worth of card fraud is committed every day - that's a fraudulent transaction every eight seconds.
"We're putting in measures which will have a significant impact on this figure, will ensure better safety for UK consumers and will help take away the nightmare of card fraud."