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Pay as You Go with Smartphones

Why the smart money’s on smartphones as the way to pay for everything you buy

Osama Bedier is about to buy a pair of scandalously skimpy size 4 denim cutoff shorts from American Eagle Outfitters. The beefy, Egyptian-born vice-president at Google—and former bouncer at the Roxbury night club in Los Angeles—is buying the $25 Daisy Dukes to demonstrate a novel way of paying in stores and restaurants: with a cellphone. As about 200 bankers, credit-card executives, journalists, and Googlers watch at the company’s New York building in late May, Bedier waves his Nexus S smartphone in front of a credit-card reader. The device beeps in response, and three things happen at once: The phone submits a $5 store coupon, his Citibank MasterCard account is charged $20 for the shorts, and his loyalty card with the retailer, also stored on the phone, is credited with the purchase. “And that’s how simple it is,” says Bedier, awkwardly holding a brown paper bag with the short-shorts, which he vows to give to his daughter. “We call that single tap.”

Sixty years after the creation of the plastic credit card, big corporate names are backing a new wave of payments technology—a tap with a phone, rather than a swipe with a credit card. Pretty much every major bank, credit-card company, wireless network operator, and a good number of Silicon Valley players are exploring the cellphone as the next ubiquitous way to spend money. Efforts such as Google’s fledgling service, Google Wallet, which begins trials this summer in New York and San Francisco, are the culmination of a decade of arduous technology development and a multiparty, cross-industry battle over who will control the $20.5 trillion global market for in-store retail transactions. Also pushing their own digital wallets are, among others, Visa, American Express, EBay’s PayPal division, and Isis, a venture of three large U.S. mobile phone carriers.