Vodafone is looking to strike an early blow in the battle to bring “digital wallets” to the Australian retail world, yesterday unveiling a deal with Visa that will see Vodafone customers using smartphones next year to make contactless in-store payments by simply holding the phone within 1cm of an electronic card reader.

Telstra and Optus are believed to be working on similar systems. And MasterCard Worldwide earlier this year announced plans for a digital wallet system that it says consumers – including Australians – will be able to use for purchases in stores.

But Voda and Visa are looking to strike first, unveiling the “Vodafone SmartPass” system at a media event in downtown Sydney yesterday. Execs said the system would begin operation next year, following launch of a SmartPass app and several months of trials.

Customers will be able to acquire a near-field communications (NFC) equipped SIM from Vodafone, load the app onto an NFC-equipped mobile phone such as the Samsung Galaxy S III – but not Apple’s NFC-free iPhones – and register for a Visa prepaid “virtual card”.

Funds can be transferred from an existing Visa or MasterCard card account to the virtual card, and the phone can then be used to make payments of up to $100 at stores equipped with Visa PayWave readers.

The ANZ Bank is providing the virtual Visa cards and upload facilities. A company named Rev is providing connections to VisaNet to process transactions.

“We expect to see NFC smartphones eventually replacing all the cards we carry in our wallets,” said Tom Roets, Vodafone Oz’s GM of strategy and business development.