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The UK's three biggest cellco are facing a European Union probe of their mobile payments joint venture, Project Oscar, but one of the partners, Telefonica O2, is pressing ahead in the meantime. The company has launched O2 Wallet, the first UK carrier to provide such a service.

The new offering will enable users to transfer up to £500 to other UK handsets, and to shop online. It does not currently support the payments technology du jour, NFC, but it will do so in a future upgrade, enabling contactless point-of-sale transactions where the phone is swiped over a terminal to pay for small purchases.

The UK is something of a hotbed of mobile payments activity now. Barclays Bank has already launched its Pingit service there, and Google will extend its own wallet, in one of its first non-US moves, within a few months.

The O2 application is currently available for iOS, Android and BlackBerry plus a web-based alternative, and is not confined to O2 subscribers. Customers can link their new O2 Money accounts to an existing debit card, or can top up special prepaid cards with cash at one of 30,000 locations. The service is backed by Visa, and comes with both virtual and physical prepaid cards.

″O2 Mobile Wallet is a flagship, feature packed service that has clearly been designed to face the increasing threat of mobile payment services from over-the-top players such as Google Wallet and PayPal, and of course other operators,″commented Eden Zoller, principal analyst at Ovum, but with the caveats that operators would have to live up to high expectations in the areas of security and customer experience. O2 detailed its security approaches, insisting it had carried out months of internal trials including security experts. All personal and financial data is held in remote servers rather than on-device.

O2 said it has signed up over 100 online retailers to support the virtual O2 Money Visa Account card, and will gain revenue by charging these partners a transaction fee. There are future plans also to charge consumers 15p per money message sent by text, which could either boost income or allow O2 to make its merchant rates more competitive when competitors enter the field.

The firm would not, however, comment on how its new wallet would fit into Project Oscar, if at all. That will provide a unified wallet, NFC, and other services across the bases of O2, Vodafone and Everything Everywhere, subject to approval by EU competition authorities. The UK's fourth cellco, 3, has complained that it was deliberately excluded from the initiative.

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