The trillion-dollar question: Who will power your mobile wallet?

July 20, 2011, 12:46 AM UTC

By Stacy Cowley, CNNMoney tech editor

FORTUNE — If you want to get a smackdown going, throw together five executives each angling for a lucrative piece of a $4 trillion market.

The retail payments space is one of tech’s hottest battlefields. The reigning technology, magnetic stripes on debit and credit cards, is nearing the end of its 50-year run — “it’s just the U.S. and sub-Saharan Africa” left clinging on, quipped Verifone (PAY) CEO Doug Bergeron — as NFC (near field communication) chips embedded in smartphones and other devices begin their ascent.

A new way of making payments opens the door for innovation. It also gives an army of new players the chance to try to wedge themselves into the payments stream.

Google payments chief Stephanie Tilenius wants to see phones replace payments cards.

“There’s huge potential here — it’s like Amazon in 1999,” Stephanie Tilenius, Google’s vice president of commerce and payments, said at Fortune’s Brainstorm Tech panel discussion on the mobile payments field.

Talk of “open ecosystems” and “co-opetition” dotted the discussion, but the reality is that only a few vendors will emerge as the industry’s new kingpins — and the fight to be among them is fierce.

One of the scrappiest upstarts is Square, which recently closed a $100 million funding round that valued the company at $1 billion. While the telecoms, payment networks, banks and new entrants like Apple (AAPL) and Google (GOOG) try to hammer out the technical and business-model complexities of NFC and other new payment systems, Square is focused on solving immediate pain points with “products that just work today,” said COO Keith Rabois. He blasted NFC-focused pay-by-phone solutions as “adding a new layer for the consumer and merchant on top of a broken system.”

Those invested in the new solutions obviously see things differently. Retailers love the idea of gathering more point-of-sale data from their customers, Verifone’s Bergeron pointed out, and Google thinks there’s fortunes to be made in helping retailers target customers with personalized, real-time deals and offers. There’s a big upside for customers as well: Instead of juggling coupons, loyalty cards, credit cards and receipts, the entire payment process can be unified into a one-tap transaction.

But getting all the warring factions together to make that happen is a Sisyphean task. The boulder rolled a few inches further up the hill on Tuesday as Isis — the mobile payments joint venture created last year by Verizon, AT&T and T-Mobile — announced that it has lured American Express (AXP), MasterCard (MA) and Visa (V) into the fold. They join Discover (DFS), one of Isis’s founding partners.

The next step is to win over the banks, Isis CEO Michael Abbott said. “As you evolve this ecosystem, the banks want to know what’s in it for them,” he said. “They own these customers.”

Here’s one thing the banks will love: An unexpected opportunity to cut down on the window of opportunity for fraud after a payments card is lost or stolen. Asked to comment on what Starbucks (SBUX) has learned in its experiments with phone-based payments, audience member Stephen Gillett, Starbucks’ CIO, offered up an intriguing data point.

“I takes an average of 40 minutes to realize you’ve lost your wallet,” he said. “If you’ve lost your phone, it takes an average of 5 minutes to realize it.”

[cnnmoney-iframe src=]