The next digital battlefield: Your wallet

Handset companies, mobile operators and banks are wrestling for control of the mobile payments market.

Mobile operator O2 is the latest to unveil a mobile payments service as the battle to control the wallet of the future continues to intensify.

The company’s O2 wallet service allows customers to transfer up to £500 via their mobile phone, with retailers including Debenhams, Comet, Sainsbury’s Direct and Tesco Direct signing up to accept payments.

While the mobile payments market is at best nascent, in the long term all sorts of payments are likely to go contactless and mobile, so mobile operators, handset makers and credit card companies are jockeying for position and launching a variety of payment options, none of which so far have reached anything near critical mass.

Earlier this month Barclaycard showed off PayTag, a miniature credit card it hopes customers will stick on the back of their mobile phones to make contactless payments. Back in February Barclays unveiled its Pingit app for iPhone, Android and BlackBerry handsets, which allows users to link their mobile phone number to their bank account and make payments to anyone who owns a mobile phone in the UK.

Meanwhile, Samsung is working with Visa on a soon-to-be-released NFC enabled smartphone for athletes at the London 2012 Olympics.

Mark Austin, head of contactless at Visa Europe said the Olympics is likely to be a big driver for contactless payments as there will be 3,000 contactless point of sales devices and 350 contactless vending machines.

Contactless has a number of benefits for retailer – including cutting fraud and increasing spending, he said:

“People are limited by how much cash they have in their pocket: the transaction value is inflated when you are using a card because you are less constrained – which is why retailers accept cards.”

Nearly every major retail brand has a contactless plan, he said.  Visa has issued 21 million contactless cards in the UK and there are 104,000 contactless terminals.

And he added: “People still prefer to make contactless payments with cards now but more and more will use phones,” he said.

And it’s not just the existing players that are interested in mobile payments: to complicate the situation further there are new entrants into the market like Google – with its Google Wallet service - that also want to swoop in and take over the mobile payments business.

“This is exactly what Google is aiming to do with its mobile wallet service and if it gains critical mass then it will have a disruptive impact on operators,” said Eden Zoller, principal analyst at Ovum.