Fumbling for change and cards could soon be a nuisance of the past if a mobile phone being given trials in London makes it to market. The O² Wallet Phone is a standard Nokia handset that doubles as a prepay Barclaycard and Oyster card, Transport for London’s electronic travel card, when touched against special readers at shops, train stations and on buses.

Guido Mangiagalli, of Visa, which owns the Paywave technology used in the trial, says that the early indicators have been “very positive” and the service could be extended before the close of next year, with the phones acting as either debit or credit cards, as well as prepay cards.

For the trial, which is using 500 O at £10 and do not require a PIN or signature. But Mr Mangiagalli says that any commercial services would allow larger purchases with PIN use.

The phone uses secure Near Field Communications (NFC) technology to make an immediate transaction. However, the Barclaycard readers, which can also be used with a number of Visa Paywave and Master-Card Paypass cards, currently have limited distribution in the capital. Most are clustered in commuter hotspots. Participating retailers include Books etc., YO! Sushi and EAT.

The Times tested one of the handsets on the London Underground, at The French Bookshop, in South Kensington, and at a Krispy Kreme doughnut store in the City. All transactions were quick and easy, as promised, and impressed sales staff and customers unfamiliar with the concept.

O² early to speculate on prices for the mobile but add that users will not be charged a premium. Customers will pay for the handset and a standard O² tariff. They will then have the option to enable the payment function with Barclays by opening a savings, credit card, or prepay account at the bank’s standard interest rates – or by activating an existing account.

Mr Mangiagalli says that Visa hopes to make the technology available to a range of providers, including rival banks and phone companies, so that consumers can shop around.

The Nokia 6131 NFC used in the trial is a clamshell handset with a camera and online browsing, video and MP3 capabilities. The price at Nokia.com is £139, but the NFC technology is currently available only to participants in the trial. The phone’s payment technology is housed in the Sim card and can be used mid-call or even when the battery is dead. All applications can be cancelled with one call if the phone is lost or stolen.

Sandra Quinn, of Apacs, the UK payments association, says: “For now, banks are concentrating on contactless cards [not requiring signatures or use of a PIN], but forecasts suggest that phones are the way to go.”

These contactless payment cards, which use identical NFC technology, can be used at the same readers as the Wallet Phone, or in standard card readers. Barclaycard OnePlus, for example, is a souped-up Barclays Platinum card aimed at Londoners, who can use it for standard credit card transactions, to make contactless payments and as an Oyster card.

Ms Quinn says that banking industry projections suggest that five million of these cards will be in use in the UK by 2009, with readers in place at 100,000 stores. The technology has already proven highly successful in Asia and the US.

A number of safeguards protect users of contactless technology. Most obvious is the £10 limit for payments without identification. The number of consecutive transactions allowed is also capped and cardholders should be reimbursed for losses when a card is immediately reported lost or stolen.