Many Competing Paths on the Road to a Phone Wallet - NYTimes.com

With the rapid uptake of smartphones I'm surprised their use as payment devices has not been quicker. The price of new merchant terminals is higher so retailers have little incentive to upgrade. The credit card companies are now accelerating the switch by  off-loading fraud responsibilities to the merchants not using the new terminals.

Android in advanced smartphones such as Samsung's Galaxy Nexus line support NFC (Near Field Communications),  now it seems merchant terminals will be NFC capable in the next 5 years according to this NY times story.  This method of payment makes a lot of sense rather than carrying a bunch of plastic in your wallet.

The interim competition will be from Square and PayPal who furnish their own smartphone card reader devices free to individuals and small businesses. I use Square infrequently for business and non-profit use. I find it easy, and convenient.

 "Merchants are facing heavy pressure to upgrade their payment terminals to accept smart cards. Over the last several months, Visa, Discover and MasterCard have said that merchants that cannot accept these cards will be liable for any losses owing to fraud.

“Everybody is going to be upgrading,” said Jennifer Miles, an executive vice president at VeriFone, which provides payment terminals to most merchants in the United States.
While updating the terminals for smart cards, VeriFone also plans to upgrade for smartphone wallets, providing the capability for near-field communication, the technology used by the Google and Isis wallets, the two biggest smartphone wallet projects."