The PayPal Security Key is being tested by PayPal employees right now, and the test will be opened up to beta users in the US, Germany, and Australia "in the next month or so," Bettencourt said. Later this year, the company plans to begin promoting the devices to all PayPal users.
PayPal users who want this extra level of security will be able to buy the devices for $5 (£2.57), but this fee will be waived for PayPal business account holders.
PayPal's device is based on VeriSign's One-Time Password Token product, which is also being tested by Charles Schwab & Co. and US Bancorp.
ETrade Financial also uses a similar system, based on RSA Security's SecurID tokens.
Over the past year, ecommerce and financial services companies have paid more attention to authentication technologies such as the VeriSign tokens, which add a second layer of authentication to online transactions. Adoption of these "two-factor" authentication techniques has been further boosted by new US federal guidelines, which require stronger authentication for online transactions.
The UK payments association Apacs has been in talks with financial services companies to also introduce the technology to UK consumers.