NEW YORK Shoppers soon will be able to use mobile phones to pay for things at the checkout counter under a system unveiled by Google Inc and other major companies.
Google, MasterCard, Citigroup, Sprint and transaction processing company First Data will make the service available this summer in New York and San Francisco, Google said on Thursday.
The service, which competes with plans by Visa and other top U.S. banks and mobile phone companies, is similar to how people shop in Asia, where some customers already routinely wield smartphones like credit cards.
For U.S. banks, mobile payments are a way to wean their customers from cash and make more money. Merchants pay banks fees every time a shopper buys something with a credit or debit card, and Google said it would not take a cut of those fees from the new pay-by-phone system.
Designed to work as an app on Android phones, Google's service hitches a ride on MasterCard's "PayPass" technology, which lets shoppers tap cards for payment. Google has signed up retailers including Macy's Inc, American Eagle Outfitters Inc and Subway to blend the service with loyalty programs and discount offers.
Google plans to take a slice of revenue from another project it released on Thursday called "Google Offers" which are coupons and daily discount deals.
For example, executives described how someone walking by a Macy's poster can tap on an area, triggering a coupon that shows up in the mobile wallet. That person can save the coupon for use at checkout.
"Google's interest here isn't in the payments, it's in the data that underlies the complete chain of commerce including consideration, promotion, transaction details, coupons, and receipts," said Forrester Research analyst Charles Golvin.
In the United States, mobile payments face hardware obstacles and other hurdles. Also, the credit and debit card market is much more developed than in many markets abroad where more people use mobile phones more than credit cards.
Americans "are in love with their phones," but don't have the technology to use them to pay for things, said Chris McWilton, MasterCard's head of U.S. markets.
Full adoption of this and other mobile payment systems would take "years," McWilton said, and would depend on merchants upgrading their terminals.
Google and its partners will subsidize equipment upgrades for merchants so they can accept mobile payments.
To ease the minds of people concerned about the theft of mobile phones and personal data, Google said it could deactivate the virtual credit cards much as a bank would cancel a stolen card.
Google Wallet will require a customer to enter a password before making a payment with the phone.
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Some large U.S. companies have raced to make the technology a reality since last year. Citigroup MasterCard holders with PayPass-enabled cards will get first crack at Google's service. The Internet giant also plans to sell a virtual prepaid card similar to PayPal's online payment service.
If the service is launched this summer as expected, it would beat rival Isis. The venture between Verizon Wireless, AT&T and T-Mobile USA has said its service would be launched early next year.
Google plans to open the Wallet app to other carriers including Isis.
Richard Clemmer, Chief Executive of NXP, Google's mobile wallet chip partner, expects that there will be at least 20 phone models on the market with NFC chips by the end of this year. The number could be as high as 40 around the world.
Visa Inc has also tested a pay-by-phone system with several large banks, including Bank of America Corp and Wells Fargo & Co. The world's largest credit and debit card processing network has said it plans to make its mobile payments system commercially available this year.
For Citigroup, which has a large international operation, the new mobile payments system will help it expand into online and digital banking. The third-largest U.S. bank by assets is trying to gain more business by offering new features for its wealthy, urban, tech-savvy customers.
"You're going to see us be very focused on this area over the coming decade," said Paul Galant, Citigroup's head of global enterprise payments. (Reporting by Maria Aspan, Jennifer Saba, and Sinead Carew; Editing by Robert MacMillan and Richard Chang)