Google (GOOG) CEO Eric Schmidt showed off what would later be announced as the Nexus S smartphone at the Web 2.0 event in November.  The one feature he showed off was the phone’s ability to do near field communications (NFC), which is currently limited to reading placemarkers (shown in the video below).

[youtube=http://www.youtube.com/watch?v=jCUH8STTfyU&w=600&h375&start=80]

Schmidt talks about how NFC has been around for a while but has yet to gain a following. Developers can take this technology and run with it to build payment systems for mobile devices.

You know who else is running with it?

According to Businessweek, Google is also building out an NFC payment system.

Google joins a slew of companies that want in on the NFC market, which may account for a third of the $1.13 trillion in global mobile-payment transactions projected for 2014, according to IE Market Research. In November, Verizon Wireless, AT&T (T), and T-Mobile USA formed a venture called Isis to offer an NFC-based service in 2012. Visa (V) is testing contactless payments and planning to roll them out commercially in mid-2011, says Bill Gajda, Visa’s head of mobile innovation.

“It’s a land grab,” says Jaymee Johnson, a spokesman for Isis. “Folks are sort of jockeying for position.” “

Bloomberg also talks about Paypal (EBAY) entering in the fray in the second half of 2011.

Schmidt says that Google is just a technology provider in all of this.  However, Google has a pretty good strategic position.  Being first to market with NFC on Nexus S and Gingerbread and owning the dominant smartphone OS, who better to exploit the burgeoning mobile payments ecosystem than Google?

Obviously, having a tie to Google’s not quite mainstream Google Checkout would be important as well.  As would backend partnerships and marketing, which Google has dropped the ball on before.

For this to work for Google, I’d expect to see a few tie ins with major banking institutions like HSBC/Chase/Citi and credit card companies like American Express (AXP) or Mastercard (MA).  Google shouldn’t be doing the marketing.

Perhaps this will get Google to its $10/device on 1 billion phones goal.