Royal Bank of Canada and Visa Canada announced Thursday they are testing technology that would allow people to use their cellphones as electronic wallets.

The bank and credit card company said they are launching an Ontario-based pilot project, to be conducted in three stages in 2008, that would allow consumers to simply swipe their phone in front of a scanner to make simple purchases.

The pilot program will begin with laboratory testing followed by two trials, one for RBC employees in early 2008 and another, larger trial later in the year with consumers.

Anne Koski, head of payment innovations at Royal Bank's cards division, said the "contactless" technology would be similar to one currently being tested for use in credit cards. Instead of imbedding a chip in the card, however, the chip would be placed on a handset.

She said having the technology on a device "most people carry anyway" would provide added convenience for consumers.

"You pull out your phone at the checkout, wave it in front of the reader, and the payment is made for you, there is no pin, and typically you don't even get a receipt — it's that easy," she said.

Koski said the phone-payment system would only work for payments $25 and under, and consumers would be further protected if their phone were stolen in much the same way a credit card customer would be protected: by contacting the company to cancel the chip.

The two companies are also testing to see whether consumers would use password protection if it were an option.

"Our vision would be to have the service available in 2009, where a Royal Bank customer could choose to have the capability added to their phone," she said.

Some countries already on board

Some countries, such as South Korea and Japan, have already adopted mobile phones as a platform for making payments — or m-payments. But  the technology has only appeared in limited trials in North America.

Koski said those countries have been quicker to adopt the technology because their high population density has put a premium for merchants and operators of transit services on getting customers through lineups faster.

Steve Yang, a telecommunications analyst with IDC Canada, said the project is unique because the wireless carriers usually spur such trials.

None of the three top wireless carriers in Canada — Telus Mobility, Rogers Wireless and Bell Mobility — is involved in the project. All three wireless carriers do, however, belong to a joint venture called Wireless Payment Services (WPS) that is working on making standardized wireless payments.

Robin Dua, the president of WPS, said the RBC-Visa project is just one of many pilots investigating the potential of the contactless technology.

"This is a small piece of the pie — we're talking about one financial institution and one card issuer," he said.

He stressed that before any mobile service could be launched commercially, it would have to include contributions from the mobile operators, who control what software is enabled on handsets sold in Canada

"Mobile operators are an integral part of the equation," he said. "If consumers run into trouble with the software, it's the mobile operator and not the bank who they are going to call."

Rob Burbach, a senior financial analyst also with IDC Canada, said for an m-payment system to be successful in Canada, it would have to include input from a number of stakeholders, including the banks, telcos, phone manufacturers and merchants.

Koski agrees the project has some hurdles.

"There a lot of moving parts involved in this," she said. "We're still figuring out how all of this might work and how to include everyone."