The mobile communications industry has excelled at packing just about every imaginable application into small, lightweight handsets - except for one: an easy-to-use, low cost mobile payment solution that is supported by all the major players.

But that could soon change.

Starbucks, the world's biggest coffee chain, has bought into mobile payments startup, Square, in a move that could threaten numerous rival payment schemes and shake up retailing.

The coffee shop giant has processed more than 60 million mobile transactions over its own platform in just 18 months.

It has now turned to Square to grow its business as well as to help the startup expand its own customer base. 

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Starbucks sees huge demand for mobile payments.

Many of its young, tech-savvy customers already rely on their smartphones for a wide range of services and are big users of electronic payment services.

"The consumer is going through a seismic change in which cash - over time - will be obsolete," Starbucks CEO Howard Schultz said on US television.

In the first phase, Square will adopt the current mobile payment solution in Starbuck coffee shops. It uses scanning technology to read bar codes, containing credit card information on a customer's mobile phone, to process transactions.

The company will also offer its mobile phone card reader - a dongle device that can be plugged into either a phone's headphone or charger socket.

In the future, however, Starbucks plans to adopt the full "Pay with Square" technology.

The GPS-based system automatically notifies a store that a customer has entered and shows both the person's name and photo on the cashier's screen. The customer provides his or her name and if the name and photo match, a payment can be competed.

Huge potential

Square, which is headed by Twitter co-founder Jack Dorsey and backed by billionaire Richard Branson, is one of many tech companies, including Google, eBay, Intuit and PayPal, vying for a chunk of the mobile payments market.

This year, market researcher Gartner expects the global market for mobile payments to reach $171.5 billion (138.6 billion euros). That is up from $106 billion the year before. And it forecasts mobile transactions worth $617 billion by 2016 - generated by 448 million users.

But other analysts say the market is highly fragmented due to the wide range of competing technologies and solutions on offer.

"There is huge technology battle raging," says Silvinas Bareisis, an analyst with the London-based consultancy, Celenet.

In the one camp, Bareisis says, is Near Field Communications (NFC) technology. With this contactless solution, key billing information is contained in a chip inside the handset. A sensor reads the information, which is then transmitted over a wireless network to a server.

Several NFC applications are on the market, including Google Wallet, and are available over a growing number of handsets, particularly from Nokia.

It is rumored that Apple will include NFC technology on its new iPhone, which is expected later this year.

Look to the cloud

Cloud-based payment solutions rest in another camp.

"In these systems, you don't even use your phone to make a payment," says Bareisis. "It serves simply as a device that identifies you at the register. All the billing information is in the cloud."

PayPal has been one of the early supporters of cloud-based mobile payments. More recently, Google has moved into the area, mixing in its Google Wallet solution, according to Bareisis.

The field is full - some say cluttered - with an army of startups like Britain's eWise payo, the US's Paymentwall, Netherlands-based iDEAL and Sweden's iZettel. All have a foot in the one or other camp, or are trying to carve out a niche of their own.

Paymentwall, for instance, claims to have developed one of the first payment solutions based on the HTML5 mark-up language for displaying information on the web. HTML5 is technically still in development.

But Bareisis is not alone in thinking that all these competing options are hindering the market from what could be an explosive growth for mobile payments.

"I travel a lot and am a big user of credit cards," says Michael Schlömer, managing director of Haaro Friseurbedarf, a supplier of hair stylist equipment in Solingen, Germany. "But the last thing I want is to have an app from one provider that I can only use with one retailer or even a number of retailers in just one country. I would be very interested in a mobile payment solution that I can use with all retailers - everywhere."