Why mobile payments can’t come soon enough

July 1, 2011, 9:00 AM UTC

Services from Google, Square and Intuit are already simplifying consumer credit. But it’s the long-term changes that will redefine how merchants, banks and consumers interact.

This is the second in a series of articles leading up to the Fortune Brainstorm Tech conference, which will be held from July 19-21 in Aspen, Colorado. Fortune Brainstorm Tech will round up many of the best and brightest thinkers in technology. Our coverage in this series will examine the progress of companies that presented last year and give an idea of what to expect this year.

FORTUNE — As companies like Google (GOOG), Square, Intuit (INTU) and, reportedly, Apple (AAPL) place their bets on some form of mobile payments, the technology’s long-term potential becomes clear. What’s harder to envision is exactly how this nascent industry will evolve.

Each company’s service manages to transform mobile devices into a credit-transaction device, although their approaches vary. Google Wallet lets Android smartphones make payments simply by swiping or tapping them in front of compatible readers. Meanwhile, Square and Intuit’s GoPayment services rely on credit-card readers that plug into audio jacks. Square in particular is thriving: Jack Dorsey’s two-and-a-half-year-old startup made headlines again this week when it raised $100 million at a $1 billion valuation.

At this point, it’s easier to glean the broader, more immediate benefits of such services. With Square and GoPayment, any merchant can handle digital payments without having to shell out hundreds of dollars for a traditional credit card transaction machine. And services like Google Wallet may mean you never have to carry around plastic again. Beyond that, however, there are longer-term possibilities for mobile payments that are especially tantalizing:

1.) Real-time feedback.

It can take up to two weeks for merchants to receive feedback as to how well a plain-old paper coupon performed with customers. With Near Field Communications (NFC), feedback from smartphones could be instantaneous, richer and more detailed. Lars Skari, who heads Infosys’ banking and capital markets group, said merchants and marketers can parse through available data on coupon purchases hour-by-hour, examining overall coupon adoption rates over time. That information would allow them to adjust coupon discounts on the fly.

2.) Tapping the GPS

Assuming consumers can opt in and tweak privacy settings to their hearts’ desire, the smartphone’s GPS could add a new level of location-sensitive features.

Earlier this year, Stephanie Tilenius, Google’s VP of Commerce, suggested that NFC could make every day life easier: If you find some jeans in a Gap (GAP) store but they’re out of your size, a scan of your smartphone can make sure a pair will be sent to you.

Skari offers a more detailed example. When a shopper walks into the supermarket, his smartphone could receive a customized shopping list based on his shopping history there. As he walks down an aisle looking for say, frozen pizza, he’ll receive coupons for them. Other supermarkets could try to entice him through their doors by modifying their coupons and offering deeper discounts. If users plug in their social accounts, they get even more information, such as what their friends recently purchased or which brands they recommend.

3.) An easier banking experience

Services like Google Wallet likely won’t upend the business models of commercial banks, but could alter the way customers interact with them.

Already, Google Wallet promises to make plastic obsolete. Skari suggests the next logical step would be for such services to handle billing payments as well, acting as an intermediary between banks and customers and providing a simple, clean user interface that lets them intereact seamlessly.

Sound far fetched? Maybe, but given that these companies all excel in providing painless user experiences, it’s a possibility. “Companies like your Google, Mint, Square and others are coming from more of a true retail environment,” says Skari. “They’re starting to make inroads into that very important customer segment” of consumers under 30.

Square COO Keith Rabois supports that assertion — as least with regards to his company — claiming that the startup has a 95% chance of one day becoming more valuable than eBay’s (EBAY) PayPal and a 50% chance of becoming more culturally relevant.

“We are not limited to just e-commerce,” he said. “We enable real world payments, which is a much bigger market and is more valuable.”

To learn more how consumers, finance and tech companies will win big, look for our conference coverage when Tilenius, Rabois, Visa President John Patridge and others participate in the “Mobile Payments Smackdown” panel with Executive Editor Stephanie Mehta on July 19.