A Google Mobile Payment Service>>>

"You'll be able to walk in a store and do commerce," says Google's Eric Schmidt. "You'd bump for everything and eventually replace credit cards"

Google (GOOG) is considering building a payment and advertising service that would let users buy milk and bread by tapping or waving their mobile phones against a register at checkout, two people familiar with the plans say. The service may make its debut this year, say the two, who requested anonymity because the plans haven't been announced. It is based on near-field communication technology, which can beam and receive information wirelessly from 4 inches away.

Google joins a slew of companies that want in on the NFC market, which may account for a third of the $1.13 trillion in global mobile-payment transactions projected for 2014, according to IE Market Research. In November, Verizon Wireless, AT&T (T), and T-Mobile USA (DTEGY) formed a venture called Isis to offer an NFC-based service in 2012. Visa (V) is testing contactless payments and planning to roll them out commercially in mid-2011, says Bill Gajda, Visa's head of mobile innovation.

"It's a land grab," says Jaymee Johnson, a spokesman for Isis. "Folks are sort of jockeying for position." "

Open to Partnerships

EBay's (EBAY) PayPal may start a commercial NFC service in the second half of 2011, says Laura Chambers, senior director of PayPal Mobile. The system would also power peer-to-peer NFC transactions. For example, a restaurant patron might beam his share of the bill to his dining companion's phone. PayPal is open to partnering on NFC payments with companies such as Google, Chambers says.

Speaking about NFC at a technology conference in November, Google Chief Executive Eric Schmidt said, "You'll be able to walk in a store and do commerce. You'd bump for everything and eventually replace credit cards." Andy Rubin, Google's vice-president for engineering, declined to comment on future services and products.

A single NFC chip on a mobile phone would hold a consumer's financial account information, gift cards, store loyalty cards, and coupon subscriptions, say the people familiar with Google's plans. Users may also be able to make online purchases from their phones. By scanning a movie poster, for instance, a consumer might read reviews and use the Google service to purchase tickets.

"NFC could displace the cash register," says Charles Walton, chief operating officer for NFC chipmaker Inside Secure. "This is going to come superfast."

New Version of Android

Google may be in a good position to disrupt the payments industry because merchants and consumers already use its technology widely. Some 300,000 people activate phones daily that use its Android software. On Dec. 6, Google released its newest version of Android, called Gingerbread, which has some NFC features, such as reading information from NFC tags. More functionality "will come out pretty quickly," says Google's Rubin. On the market since Dec. 16, the NFC-enabled Nexus S phone, developed with Samsung Electronics, will serve as a test for a Google payment and ad service, says one of the people knowledgeable about Google.

Last year, Google bought Zetawire, a Canadian startup with a patent on a way to combine a phone-based wallet with a reward-and-loyalty system. Google Ventures, the company's venture capital arm, also invested in Corduro, a closely held developer of mobile-payment solutions in Southlake, Tex.

Google is ramping up efforts to seed merchants nationwide with NFC tags, which can be read by NFC-enabled phones. Since mid-December, it has handed out hundreds of NFC kits—including window tags and fortune cookies to give to customers—to businesses in Portland, Ore., where Google is testing a project called Hotpot.

 

What the Oregon Test Shows

When scanning an NFC-enabled window decal with an Android-based NFC phone, a user can see the business's work hours, check out reviews, rate the business, and get advice from Google on other local businesses. "It's something that helps local businesses," says Sara Heise, an event planner at Voodoo Doughnut, one of the businesses taking part in the Portland test. "It'll allow us to interact with our customers more, especially the younger, texting generation."

To promote the technology and local advertising, Google gave out 22,000 T-shirts at a Portland Trail Blazers basketball game. "We are going to start expanding into more and more cities in the near future," says Lior Ron, group product manager for Hotpot. "We want to make it national."

Global shipments of NFC phones will jump to 220.1 million units in 2014, up from 52.6 million in 2010, according to consultant ISuppli in El Segundo, Calif.

Last year, iPhone maker Apple (AAPL) hired Benjamin Vigier, an expert on NFC technology. The company also filed for a patent on a way to transmit payments from one cell phone to another using NFC. Apple spokeswoman Natalie Kerris didn't return a request for comment. Research In Motion (RIMM), which makes the BlackBerry, filed for a patent on a system that makes NFC payments more secure. RIM spokeswoman Marisa Conway didn't immediately return a request for comment.

An NFC payment and ad service may let Google grab a bigger piece of the U.S. mobile-ad business. The company ended 2010 with 59 percent of the $877 million market, according to an estimate by research firm IDC in Framingham, Mass. "Google is a very innovative company," says Johnson at Isis. "They'll continue to push the envelope and have a number of potential roles to play." :By Kharif