As with all good science fiction we have a glimpse into what we might develop in the future, or at least get the scrim of an outline of how we could interact using technology. When Google Android began to implement hardware that uses Near-Field Communications enabling a lot of transactions between smartphones and other devices it opened up a great deal of avenues to start using smartphones to do financial transactions.

With the proper equipment in a cash register, a smartphone could take the place of a credit card, storing the same information and authorizing the transaction. For already existing virtual wallet-type services like Paypal, this could prove to be their step out of online-only into the world of brick-and-mortar stores. Certainly, they’ve already done this by releasing their own credit card, but why wait for a physical card to be shipped when a phone could be updated with authorization tokens and an app to do the same thing.

Bloomberg Buisnessweek has written up an article on Google’s presentation and expectations of turning our mobile devices into transaction-authorizing devices.

EBay’s PayPal may start a commercial NFC service in the second half of 2011, says Laura Chambers, senior director of PayPal Mobile. The system would also power peer-to-peer NFC transactions. For example, a restaurant patron might beam his share of the bill to his dining companion’s phone. PayPal is open to partnering on NFC payments with companies such as Google, Chambers says.

Speaking about NFC at a technology conference in November, Google Chief Executive Eric Schmidt said, “You’ll be able to walk in a store and do commerce. You’d bump for everything and eventually replace credit cards.” Andy Rubin, Google’s vice-president for engineering, declined to comment on future services and products.

A single NFC chip on a mobile phone would hold a consumer’s financial account information, gift cards, store loyalty cards, and coupon subscriptions, say the people familiar with Google’s plans. Users may also be able to make online purchases from their phones. By scanning a movie poster, for instance, a consumer might read reviews and use the Google service to purchase tickets.

“NFC could displace the cash register,” says Charles Walton, chief operating officer for NFC chipmaker Inside Secure. “This is going to come superfast.”

As investors come on board with projects like this, products will arrive that enable NFC on the retail side. We already have Android phones that are NFC-enabled, so the next step is combining it at point-of-sale devices like cash registers and stores so that these phones can interact with them. Imagine grabbing a product from a shelf, photographing the UPC code, walking up to the register which notices the phone broadcasting that a product has been chosen. A transaction between the register and the phone takes place that negotiates the proper price (here’s the UPC I have says the phone, here’s the price says the register.) Finally, the user accepts the price, the phone and register exchange authorization and together they authorize to the financial institution. Viola: transaction done.

A clerk will probably still need to be present to verify that the product is the product the phone and register think it is; however, there may also be technological solutions to that could literally unman a store.

The part about this that would really revolutionize the use of plastic at point-of-sale is that with a smartphone the person can use their own passphrase with their phone as authorization. At no point do they need to give over auth information to a 3^rd party—as we see in restaurants when people give their credit cards to servers—thus removing at least one angle for thieves to duplicate credit transactions. With a smartphone, each transaction could be encrypted according to the nonce event and the “signature” of the individual would instead become the phone’s handshake with the point-of-sale register.

It opens up a lot of innovation for markets to allow people to combine their financial data onto their phones, reduce the number of cards they carry in their wallets, and be more aware of their current funds. In fact, I can almost see a use for a smartphone helping prevent me from overdrafting by warning me about how much funds I have in my account before a transaction takes place.

Already, wireless companies are seeing the usefulness of integrating virtual payments with their phones, such as Verizon and PayPal.

In many ways, Google and PayPal have a huge market that moves a lot of money once they get on board with this. If they manage to get this into every smartphone and every register, they’ll have a huge revenue source that currently only banks and credit card transaction companies have dominated.