Telecommunication giants Verizon's (NYSE: VZ) Verizon Wireless, AT&T (NYSE: T) and T-Mobile USA have joined hands to transform smartphones into credit cards using the contactless technology.

They have roped in Discover Financial Services (NYSE: DFS) and Barclays Plc (NYSE: BCS) to test the technology on a pilot basis in Atlanta. The stores selected would allow customers to make payments through their smartphones using the "wave and pay" method.

The contactless payment technology uses radio-frequency identification (RFID) technology whereby an embedded chip or an antenna allows consumers to wave their card or smartphone over a scanner at the point of sale.

The partnership is likely to challenge the hegomony enjoyed in the sphere so far by Visa (NYSE: V) and MasterCard (NYSE: MA). A Bloomberg report says that the carriers are considering replacement of more than 1 billion plastic cards in the United States alone. With smartphones becoming smarter, the imminent threat would be for credit cards.

The contactless technology has been in place for some time. In 1997, similar attempt was made by Mobil -- before it merged with Exxon -- when it offered its customers a "Speedpass" contactless payment system. The "Speedpass" willl automatically communicate a customer's payment preference for a credit or debit card. The device comes attached with a keychain and used in the RFID technology.

But the retailers would have to spend $200 per reader while updating a smartphone with an embedded chip that would cost an additional $10 or $15 per set.

Wal-Mart has recently announced its plan to tag garments with RFID tags from August 1 and the implementation of payment mode through smartphones does not seem far.

The success of Verizon and AT&T platform is a welcome change for retailers who have long vouched for real competition in the payments segment as they have to comply with the transaction fees of Visa and MasterCard which amounts to about 1 or 2 percent extra for every transaction.

International Business Times, The Global Business News Leader