Bank of America Corp. will pilot consumer payments with smart phones, and if the test is successful, it could pave the way for customer loyalty for retail merchants, said a payments analyst.

The trial will begin the week of September 13 in New York City, and is it scheduled for completion by the end of the year, said a spokesperson for Bank of America, which is based in Charlotte, N.C.

An undetermined number of participants will use either their BlackBerry mobile phones or their Apple iPhones to pay for purchases at merchants who accept contactless payments, said a Bank of America spokesperson.

There are 140,000 contactless payment terminals in the United States out of 4 million to 5 million payment terminals overall, said Aaron McPherson, research director for payments at Financial Insights, which is based in Framingham, Mass.

“Contactless payment terminals, however, are located in high-traffic areas, such as Target [stores], so their impact is very high,” McPherson said. McDonald’s Corp., Duane Reade, the New York-based drugstore chain, BP (British Petroleum), the gasoline retailer, and some New York City taxis accept contactless payments.

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Pilot participants will install a SanDisk Corp. memory card inside their in their cell phone. They also must download an application that turns their smart phones into mobile wallets.

SanDisk, which is based in Milpitas, Calif., manufactures flash memory cards installed in mobile phones that are used to transfer data between electronic devices. A second SanDisk card would enable Near Field Communication (NFC), enabling participating cell phone users to pay for purchases by swiping their cell phone in front of a contactless payment terminal, McPherson said. The smart phone would be connected to the owner’s debit or credit card account, he said.

“A smart phone owner must hold the phone within four inches of the contactless terminal to complete a payment transaction,” the Bank of America spokesperson said.

Apple Inc. is reportedly testing a prototype of the iPhone with near-field communication (NFC) chips inside, which could turn the iPhone into a mobile wallet. The Bank of America spokesperson declined comment about Apple. Apple also recently hired Benjamin Vigier from mFoundry, a Larkspur, Calif.-based mobile-banking company, as its mobile payments product manager.

McPherson said Apple, which is based in Cupertino, Calif., reportedly is seeking to patent its mobile payments platform.

Although the Bank of America spokesperson declined to disclose details about the pilot, she did say the financial institution is testing mobile payments to determine what products consumers purchase with their mobile phones. The pilot will support all of the major payment networks (Visa Inc., MasterCard Worldwide, American Express Co. and Discover Financial Services).

The pilot also could enhance Bank of America’s mobile banking platform, which the financial institution introduced in 2007. The bank has more than 5 million mobile banking customers.

If the pilot proves successful and if it is rolled out to consumers, it could enhance customer loyalty, McPherson said. “Retailers could place rewards on customers’ cell phones, and they could redeem them at the point of sale or pay [for purchases] with points. It would be a great convenience,” he said.

(Photo by Tom Purves.)