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Mobile phone payments to replace cash by 2016: report

PayPal estimates that £2.5bn will be spent using mobile phones in 2016

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Using mobile phones to pay for good and services rather than cash, cheques or cards, will be commonplace by 2016, says PayPal.

According to the online payment firm's Money: The Digital Tipping Point report, which features research conducted by Forrester, 45 million Brits use a mobile phone and nearly half of the 550 mobile shoppers surveyed (49 percent) said they would considering using their handset to purchase goods or services at least once every three months.

UK mobile retail sales are estimated to hit £2.5 billion in 2016, with 14 million adults regularly shopping from their mobiles. The research also revealed that, by 2014, nearly two in five US and European consumers will be using the mobile web.

"We'll see a huge change over the next few years in the way we shop and pay for things. By 2016, you'll be able to leave your wallet at home and use your mobile as the 21st century digital wallet," said Carl Scheible, managing director of PayPal UK.

"Our vision of money is to enable you to pay for something from wherever you are, whatever device you're on – a PC, mobile phone, tablet, games console and a whole lot more."

PayPal also noted that over a million British consumers that use the online payments service have sent a payment from their mobile. PayPal also said it expects to process more than $3.5 billion in mobile payments this year – five times the amount it processed in 2010.

According to Scheible, 2016 will mark the real start of money's digital switchover in the UK.

"We're not saying cash will disappear entirely, but we'll increasingly use our phones and other devices rather than our wallets to pay in-store as well as online," he added.

As well as paying for goods without having to queue, the report reveals shoppers can look forward to being able to carry digital loyalty cards, promotional offers and receipts on their phones – keeping everything in one place creating a virtual shopping hub.

There are four primary models for mobile payments: premium SMS-based transactional payments, direct mobile billing, mobile web payments (WAP) and contactless NFC (Near Field Communication). The Forrester report did not specify which of these models would be prevalent in 2012. However, NFC has been gaining traction since the launch of Google Wallet, which uses NFC technology, earlier this year.

NFC is a set of short-range wireless technologies that can beam and receive information at a distance of up to 4 inches, and is currently used in London Transport’s Oyster cards.

A recent report by Juniper Research predicted that global NFC mobile contactless payment transactions would reach nearly $50 billion (£31bn) worldwide by 2014, and that 2011 and 2012 would be “banner years” for NFC service rollouts.

Google Wallet works with MasterCard PayPass payment terminals. Users must enter a PIN in the application to enable each payment, which is done by passing a Nexus S phone close to the payment terminal. Google Wallet is currently only available in the United States

Meanwhile, payment group ISIS has reportedly earmarked $100 million to compete with Google in mobile payments, also using NFC technology. ISIS is backed by Verizon Wireless, AT&T and T-Mobile in the US.

Sophie Curtis contributed to this report


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