Many bet we'll pay with smartphone

— -- The payment industry is determined to keep your wallet and credit cards in your pocket.

Betting that smartphones will be the next dominant payment vehicle, credit card companies, payment processors and retailers are pushing for new advancements in a technology that will allow shoppers to wave their phones to pay at checkout.

But with phone makers slow to respond, the pay-with-phone revolution is still more hype than reality. "Several inhibitors will remain, preventing the technology from reaching critical mass," writes Thomas Husson, an analyst at Forrester Research in a mobile payment report released last week.

Called near field communication (NFC), the technology enables radio communication between phones and other devices that are in close proximity, without touching. This "contactless" payment system is based on the more common radio frequency identification (RFID) technology, with security measures built in, says Paul Rasori, senior vice president of global marketing at VeriFone, a credit card-scanner manufacturer that also makes NFC reader devices.

But less than a quarter of the population will use contactless payment methods in the next three to five years, the Forrester report says. The chief problem? There aren't enough phones that have an NFC chip. Global sales of NFC smartphones rose to 30 million in 2011, research firm Berg Insight says. But only about 5 million were sold in North America.

With the launch of more digital wallets from major companies such as Google, phone makers are starting to address the shortage. Several high-profile devices, including Google's Nexus 7 tablet and Nokia's Lumia Windows phone, will be sold with an NFC chip. Apple's next iPhone, expected this fall, is also rumored to have an NFC chip. "We're seeing global momentum in NFC around the world," says Bill Gajda, Visa's head of global mobile product.

The NFC retail payments market will exceed $180 billion worldwide by 2017, seven times greater than 2012, says a recent report from Juniper Research.

Privacy advocates and the Federal Communications Commission have called for further study, citing concerns about the security of information on phones waived at checkout terminals.

Jeff Miles, vice president of mobile transactions at semiconductor maker NXP, dismisses the issue. "If my (credit card) is lost, I'm pretty much exposed to everything," he says. "I can kill the confidential information on the phone."

But with more phone-toting customers walking in, merchants will have to spend on yet another piece of checkout hardware.

Given the cost, large retailers will lead the mass adoption of NFC payments, Rasori says, with small merchants sitting on the sidelines until it makes financial sense for them.

Excluding top national retail chains, only about 10% to 20% of retailers have NFC-reader devices, Rasori estimates. "But that was probably 5% just two years ago. As more (NFC readers) get bought, prices are coming down," he says.