Both organisations hope to complete their talks within the next few months, with a merger based on a share-for-share offer by Card Clear for Cardcast.
Graham Hooley, managing director at Cardcast, said yesterday: "The directors of both companies believe these discussions, should they go ahead, will be in the best interests of all shareholders and customers."
The merger between both organisations forms part of the continuing war, waged by banks and scores of other issuers, including stores and petrol companies, against card fraud, thought to cost hundreds of millions of pounds each year.
Both Card Clear and Cardcast operate on the basis of similar technology, whereby they receive details of stolen or lost cards from issuers and use technology to transmit this information to points of sale in which these cards are likely to be used. If a stolen card is used, the equipment supplied to the store or other point of sale will detect its use. The two companies are almost unique in the UK the manner in which they provide their services.
Cardcast, which was first set up in 1990, achieved an Aim listing in April this year. The company, which employs 15 staff in Byfleet, Kent, has a market capitalisation of more than pounds 14m.
It has contracts with a range of companies, including Tesco, Asda, BP and Shell, covering some 22,000 points of sale in the UK.
Card Clear, which listed on Aim last year, employs 12 staff in nearby Wentworth. Worth an estimated pounds 20m, it made first-half profits of pounds 204,000 on a turnover of pounds 904,000.
The company has recently signed deals with Mobil and Argus and its systems cover some 3,000 points of sale. A Card Clear spokeswoman said that while expansion into Europe was an important aim, the ability for any organisation to cover more points of sale in the UK was also important.