Google Wallet: Shop with a swipe of your phone

Google wants to turn your cellphone into a credit card.

This week, the search-engine giant released Google Wallet, a smart-phone app that allows shoppers to purchase items with a single swipe. Hold your phone up to the checkout counter and Google Wallet will do the work of several cards at once.

It will charge your credit card or deduct money from a prepaid Google account. At the same time, the app automatically applies store coupons and accumulates points or other loyalty rewards. Yes, this could mean surrendering (more) privacy to the Internet giant that's already in e-mail, phones, and online ads. You'll need to weigh the trade-offs.

Upsides: You save time, money, and pocket space, says Google product manager Marc Freed-Finnegan.

"We want to help you organize your wallet, organize your life practically, on your phone," he says.

Google Wallet, which will launch within a few weeks, uses "near field communication" chips – or NFC. These heavily encrypted chips send out radio signals, much like modern subway cards or office ID badges. The payment information transmits out to special NFC readers, such as the 300,000 MasterCard PayPass registers already in stores.

However, Google Wallet will not work on every phone. In fact, upon its release, the Android app will run on only one device, Sprint's Nexus S 4G. But expect more phones to jump on board soon. Lots more.

Mr. Freed-Finnegan says Google is working with manufacturers to promote NFC in phones. Analysts anticipate Apple, Nokia, and Microsoft will follow suit. PayPal and Intuit have each announced their own versions of Google Wallet – as has Isis, a partnership between AT&T, Verizon, Visa, and other major players. In three years, 1 in 5 smart phones will have NFC chips, according to Juniper Research.

Why the sudden push? There's a lot of money to be made through tiny, hidden transaction costs. "Swipe fees" make credit-card companies $35 billion a year, according to a federal report from October. Now that NFC is ready to be baked into phones, everyone is racing to claim their corner of the market.

But NFC can do more than just mobile payments. A future version of Google Wallet will allow shoppers to "check in" to certain stores by tapping their phones against a kiosk by the front door. Checking in frequently might unlock special discounts for that location.

Retailers also could install smart tags into displays, so that anyone "with an NFC-enabled phone, such as the Google Nexus S, can touch the fact tag, label, or product to instantly access product information including images, user reviews, and technical specs," writes Forrester analyst Peter Sheldon in a report from June.

As NFC phones catch on, Freed-Finnegan expects there will be a lot of experimentation, with or without Google.

"It's going to be a really exciting year for NFC," he says. "I think you're going to see people tapping all kinds of things. Not just for payment, for information, to exchange information with others. So I think NFC is going to be huge."

For more on how technology intersects daily life, follow Chris on Twitter @venturenaut.