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Cingular turns cell phones into wallets in N.Y. trial

Company tests new service that will let Nokia phones be used in stores that accept MasterCard's PayPass contactless payment cards.

Some Cingular Wireless cardholders in New York City will be testing a new service that allows them to make purchases with their cell phones.

The mobile operator said Thursday that it's teaming with cell phone maker Nokia and financial institutions Citigroup and MasterCard Worldwide to trial new phones that have MasterCard PayPass contactless payment capability.

The trial, which is expected to last three to six months, will help the companies evaluate the speed and convenience of the "tap and go" payments using mobile phones.

A group of Citi MasterCard cardholders with Cingular Wireless accounts have already been selected to participate in the trial. The participants will receive a Nokia handset with "near-field communication" (NFC) technology and the MasterCard PayPass payment function built in. Using the phone, trial participants will be able to make purchases wherever MasterCard's PayPass is accepted by simply holding their phone near the card reader. The payment is then deducted from the cell phone subscriber's account.

MasterCard PayPass service is already being tested in New York City subway stations using plastic cards issued by Citibank. The cards can also be used at 1,000 Coca-Cola vending machines in Philadelphia. Other merchants such as McDonald's and AMC movie theaters also accept the card, and in turn will accept the PayPass phones.

Contactless payment cards distributed through banks have been gaining popularity over the past several months. As of September, more than 30,000 U.S. merchant locations had hardware in place to read and authorize contactless payments. And more than 13 million consumers already have the payment devices, according to research and consulting firm Celent.

The next logical step is for the PayPass technology to be included in mobile phones, according to Cingular executives.

"Carrying a mobile phone has become almost as common as carrying a wallet," Scott McElroy, vice president of technology realization for Cingular Wireless, said in a statement. "This trial will continue to help us learn more about how NFC technologies work and how customers will want to use their phones as part of their real-world transaction process."

Consumers in South Korea and Japan have already been using cell phones to pay for things. NTT DoCoMo has been selling contactless payment phones for more than two years. Today most of the phones are used for small transactions that are often paid for using cash. But in the future, supporters of the technology expect it to be used more like a credit card. The scanners could also be programmed to download coupons or advertisements from merchants directly onto handsets.

Nokia isn't the only handset maker exploring this technology. Other companies, such as Samsung, are also developing devices to be used for payment. Muzibul Khan, vice president of product management and engineering for Samsung's handset unit, told attendees at the company's Mobile Summit in New York on Thursday to expect more news on "mobile wallets" in 2007.

Motorola also announced earlier this year that it is building handsets equipped with a specific chip to pay bills. The M-Wallet service will initially allow cell phone users to do banking chores and to pay bills at participating retailers.