BOA and Visa drive NFC

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Bank of America, the largest US consumer bank, and Visa, the world’s largest payment processor, plan to begin a test program next month that lets customers use smart phones to pay for purchases in stores.

The program, to run from September through the end of the year in the New York area, is the biggest step yet by the two companies toward creating a “digital wallet” with a host of financial capabilities built into the latest, most sophisticated mobile phones – according to Reuters.

Major US banks, technology companies and

mobile phone providers are jockeying for the lead in the technology, which some say could become a primary means of everyday purchases.

Visa also plans to conduct a similar test program with US Bancorp this year, a company spokeswoman said. A US Bancorp spokeswoman confirmed that it would begin its pilot in October.

While mobile payments have been used for years in countries such as Japan, the United States has been much slower to adopt the technology.

“We see this as a critical capability given the increasing acceptance and adoption of bank services on the phone,” Laurie Readhead, Bank of America’s head of electronic commerce, told Reuters.

The program will allow select New York-area employees and customers to install small chips, supplied by Visa and its technology vendors, in their smart phones that emit radio signals over very short distances.

Customers would then “bump” their phones with POS devices in stores bank account data would be collected and their purchases completed.

Bank of America declined to say how many people would be involved in the pilot, and a company spokeswoman declined to comment on Visa’s involvement.

Visa spokeswoman Elvira Swanson said the Bank of America pilot was not larger than the company’s other mobile trials, but she said it could have a more powerful impact on the market than some previous pilots.

“It’s a way to accelerate mobile contactless payments in the US market,” she said.

Visa said in February that it planned to start testing technology that would allow customers to make in-store payments using smartphones. At the time, Visa did not say which banks would conduct the tests.

Competition is increasing from outside the banking world.

Verizon Wireless, AT&T, T-Mobile USA and Discover Financial Services are working on forming a joint venture aimed at offering mobile payments services, people familiar with the matter told Reuters.

Bank of America, which introduced mobile banking in 2007, has more than 5 million customers conducting $15 billion in transactions via their phones – primarily bill payments and account transfers.

The numbers are small compared with the bank’s 29 million online banking customers, who conduct 1.5 billion transactions electronically, Readhead said.

Those services, bank executives said, will expand as sophisticated mobile phones, like Apple’s iPhone and Research In Motion’s BlackBerry, become increasingly common.

In the Q2, 42% of all consumer handsets sold were smart phones, up from two percent in Q2 2009, according to NPD Group, a market research firm.