Cashless technology is upon us and not just on the London Underground. At the start of this year Nokia unveiled its new NFC handset that can be used to make small payments.

Phone users can log their credit card information on to their handset and simply wave their phone at a point-of-sale reader to make a payment.

Such phones and point-of-sale readers are still rare, and NFC-enabled phones will not go into mass circulation until next year, but their take-up is expected to be quick. By 2010 the mobile phone industry predicts there will be 450 million NFC handsets in circulation worldwide.

Contactless payment will be coming to the UK sooner, however. From October, Visa and MasterCard are launching their contactless cards - debit and credit cards fitted with a chip that enables them to be read in retailers' stores. The cards will allow purchases under £10 to be PIN-free, reducing transaction times and limiting queuing. The scheme will initially be concentrated in Canary Wharf and City of London food and drink stores that have high volumes of low-value transactions.

It will then roll out across the rest of the capital and then the country. Visa is confident it will have 200,000 of its payWave cards in circulation by the time of the launch and says they will be accepted at between 2,000 and 2,500 stores across the UK.

MasterCard refuses to disclose its circulation forecasts for its PayPass cards but says it will also be focusing its attention on attracting newsagent and c-store chains where customers can "grab a paper and tap and go".

Although the initiative has not been developed specifically for c-stores, they and not the major multiples, are expected to be the early adopters.

The additional costs involved make contactless payments unattractive to Tesco but Nick Mourant, group treasurer at Tesco concedes it is appealing to small c-stores because they have much more onerous cash handling charges imposed on them by their banks. Mourant says the cost of handling cash is virtually free for the multiples (because the banks need the notes for ATMs).

Tesco pays as little as 5p to accept £100 worth of cash transactions.

But he believes this could rise by a factor of 10 for contactless payments if the pricing structure used is the same as for Visa or Mastercard debit transactions.

Scott Thomson, director of QPQ - a payments adviser to retailers - believes contact-less payments will still be more expensive than accepting cash even for smaller operators but expects many convenience stores to install contactless readers in a bid to attract customers.