Buy a burger with your mobile - the future of payments

Buying a Big Mac in the US has never been easier - you slide up to the counter, make your order and tap your wallet on the till, which automatically makes payment for you.

You can then munch on a burger until your heart's content. But few burger fans will have realised that the contactless payment card they used to pay for their lunch is going to shake up the market over the next few years.

McDonalds is one of a handful of companies to use contactless payments to speed up the process of consumer buying. Others include cinema chains, highway toll booths and the convenience store 7-Eleven.

The US arm of international bank HSBC is also giving one million contactless debit cards to customers before the end of the year.

The UK is still way behind the US on this - after all UK banks are still rolling out chip and PIN technologies.

Bruno Carpreau, product manager of MasterCard's One Smart PayPass, said it could be two years before consumers see it settle on the shores of the UK: "We are looking to launch pilots early next year. I don't see rollout next year, perhaps [not] until 2007 or 2008."

One trial set to begin before 2006 in the UK will be on Oyster card's 'e-money' scheme, which allows people to buy items such as newspapers or parking time with their travel cards.

But there are also concerns over fraudulent use of contactless cards. What's stopping a thief from stealing a card and going on a swiping rampage?

Carpreau said: "With fraud on cards there are two major risks. One is fake cards, and the other is finding a card and using it without being authorised to do so.

"We have a certain number of measures to manage that risk - we limit the number of quick payments, such as to fast food, toll roads or wherever they can be used in the situation. Also you can cap the amount [of a transaction]. The other thing is there's a liability shift. If there's a fraudulent transaction, it won't be the merchant but the issuer who pays."

Contactless payments could mean fierce competition for financial services providers as new players move into old territory. And some experts believe the future of payments may not be smart cards but mobile phones.

Earlier this year, Philips and BenQ launched a prototype phone that allows Taipei residents to buy tickets and ride the city's rail system. Philips is also working to implement a contactless Near Field Communication (which works like RFID) interface in the country's retail and banking environments.

Patrick Van Eecke, a lecturer in contactless payments at King's College, London, and lawyer for DLA Piper, said: "You only need to pay at the end of the month with a mobile phone. That's why mobile phone companies really are becoming the new competition to the credit card industry. The credit card firms don't like it."

However, last year MasterCard admitted working with phone firm Motorola to create a handset to be used as a credit card.

Van Eecke added: "You could say you don't need a credit card any longer. We already have a few phone operators in Scandinavia doing this - in Finland you can get a coke from the machine by sending a message to it.

"Telecoms operators will get a market share but only for micropayments. But PayPal will get a major market share because of the affiliation with eBay. Very important high level payments will still be done over direct debit."

And at the moment European legislation may limit the opportunities for new players to enter the market.

Van Eecke said: "There is a European directive about payments where if you are an issuer, the only activity you can do is make payments.

"It's ideal for PayPal but airline companies and mobile operators are concerned with this. If they don't take care, they might find themselves with a problem. The EC has realized this is a problem and they are going to redraft the directive to solve it."