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Google takes wraps off pay-by-phone system

Attendees watch a demonstration of the Google wallet application screen during a news conference unveiling the mobile payment system in New York May 26, 2011.

SHANNON STAPLETON/Reuters

Google Inc. and four bank and telecommunications partners Thursday unveiled "Google Wallet," taking U.S. shoppers a step closer to paying by waving their mobile phones at the checkout counter.

The Internet search company's system that lets people pay with phones instead of cards, hoping to win a race against major rivals including Visa, top U.S. banks and mobile phone companies.

Google, Mastercard , Citigroup, First Data and Sprint will make the service available this summer to people in New York and San Francisco, Google and its partners said Thursday.

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Designed to work as an app on Android phones, it hitches a ride on MasterCard's "PayPass" technology, which lets shoppers tap cards for payment. Google has signed up retailers including Macy's Inc , American Eagle Outfitters Inc and Subway to blend the service with loyalty programs and discount offers.

Shoppers abroad, especially in Asia, can pay for things by waving their phones at check-out. An estimated one-fifth of people in Japan are signed up for mobile payments. In the United States, mobile wallets still face hurdles, but since last year, some large companies have raced to make the technology a reality.

Citigroup Mastercard holders with PayPass-enabled cards will get first crack at Google's service. The Internet giant also plans to sell a virtual prepaid card.

Visa Inc has tested a pay-by-phone system with several large banks, including Bank of America Corp and Wells Fargo & Co. The world's largest credit and debit card processing network has said it plans to make its mobile payments system commercially available this year.

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