U.S. Bank and Visa Inc. soon will begin testing mobile payments in more than a dozen states that have stores which accept contactless payments.

The pilot is one of several tests in the United States and Europe to determine how well mobile payments work, said Bill Gajda, head of mobile innovation at Visa, which is based in Foster City, Calif. Banks supporting the other pilots are Bank of America, JPMorgan Chase & Co. and Wells Fargo Bank, Gajda said. If the financial institutions are happy with the test results, Visa plans a rollout of mobile payments in 2011.

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In the case of U.S. Bank, an undisclosed number of employees in 20 states will participate in their employer's mobile-payments test, said Dominic Venturo, chief innovation officer for U.S. Bank Retail Payment Solutions. Venturo declined to name the cities or when the pilot will start.

Bank employees will insert DeviceFidelity's In2Pay microSD chip into their BlackBerry and other model smart phones. Employees who use the iPhone insert the In2Pay microSD chip into a specially designed iPhone case, or In2Pay iCaisse. The iCaisse is available for iPhone 3G and 4G models, Gajda said. Richardson, Texas-based DeviceFidelity's In2Pay microSD chip turns smart phones into electronic wallets.

After the chip is inserted, smart phone users download an application housed on a secure server controlled by U.S. Bank. The application authenticates the user and his password. The application also links the phone to a payment vehicle. U.S. Bank employees' phones will be linked to the U.S. Bank's AccelaPay, a Visa-branded prepaid payroll card. "Bank employees have been depositing money into their card accounts," Venturo said. Montise plc and FIS, formerly known as Fidelity National Information Services, two mobile payment-service providers, developed an application that enables smart phone users to make purchases and check account balances as part of the pilot.

Participants can then use their smart phones to make purchases at contactless-compliant stores that have installed Visa PayWave and MasterCard PayPass at point-of-sale terminals, said Aaron McPherson, research manager for payments at Financial Insights, which is based Framingham, Mass. Pilot participants place their smart phone 1.5 to 2 inches away from the contactless payment terminal to make a purchase. "A green light flashes, showing that a payment has been made," Venturo said.

Some of the stores that accept contactless payments are CVS/Pharmacy, Best Buy, Duane Reade and Walgreens. McPherson said about 125,000 United States-based retail locations accept contactless payments. Gajda said 150,000 locations accept contactless payments, but his figures include New York taxis and New York and New Jersey commuter rail and subway lines.

If successful, Gajda thinks the smart phone could replace the wallet because of the phone's location in consumers' clothing.

"The smart phone is much closer to your hand than a wallet," he said, explaining that men keep their smart phones in their front pants pocket and their wallets in their back pants pocket.