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China’s No. 2 mobile operator, China Unicom, and the country’s large bank-card network, China UnionPay, will launch a mobile-payment project with NFC phones at the world Expo 2010 in Shanghai–a direct challenge to plans by China Mobile to showcase its RF-SIM technology at the Expo.

The announcement by UnionPay of the project comes just days before the May 1 start of the much-anticipated Expo, where China Mobile has planned the official launch and coming-out party for its proprietary RF-SIMs. The telco’s subscribers can insert the contactless SIMs into their phones and tap to enter Expo venues, ride the Shanghai Metro and pay at some stores and restaurants, including McDonald’s restaurants and Starbucks cafés–using China Mobile’s own payment scheme.

The launch by the giant mobile operator of its own scheme has rankled UnionPay, which has a monopoly on processing domestic bank-card transactions and withdrawals. Besides the new NFC project, UnionPay has responded by stepping up deployment of contactless point-of-sales terminals in China, especially in Shanghai. It pledges to have 15,000 terminals in place in the Expo park and other areas of Shanghai for the world’s fair, which ends in October, and 30,000 deployed in the city by the end of 2010. That includes supermarket chains, fast-food restaurants, convenience stores and movie theaters, said UnionPay. It's part of a goal to roll out terminals to 100,000 contactless merchant locations nationwide by year’s end, UnionPay has announced.

For the NFC project, China Unicom will issue SIM cards storing prepaid contactless payment applications issued by the Bank of China and Bank of Communications. Users will be able to insert the cards into NFC phones supporting the single-wire protocol, or SWP, a source told NFC Times.

It was not clear when the service will actually launch and which handsets the telco would use, however. The requirement for SWP-enabled phone will no doubt limit the number of subscribers for the project, which UnionPay calls a “commercial pilot." Unicom had used two NFC phones as part of a transit-ticketing launch in Shanghai last year, though it likely will order new phones for the mobile-payment project. They will likely be made by Chinese handset manufacturers using an SWP-enabled NFC chip from Shanghai Fudan Microelectronics. The telco, which had more than 147 million subscribers at the end of 2009, signed an agreement with Bank of Communications earlier this month to jointly develop mobile financial services, including payment.

UnionPay said in its announcement that the mobile-payment project in Shanghai will launch soon. While it said 15,000 terminals would be deployed to accept transactions, neither UnionPay nor Unicom is talking yet about how many users will participate or phones they plan to distribute. The two banks involved in the project might also issue contactless cards to customers.

UnionPay developed the contactless application that will ride on the SIMs, based on Chinese banking specifications and standard contactless technology operating at the 13.56 MHz frequency. It will also process the transactions.

In a not-so-subtle jab at China Mobile’s approach to mobile payment, which cuts out banks, UnionPay in its announcement said it will “adhere to the concept of “cooperative innovation” and “win-win results.” The bank-card network also said it will follow principles of “open-platform diversified technology and standardized development”.

While China Mobile appears to be backing off its aggressive RF-SIM rollout, as NFC Times first reported last month, there was never any doubt it would go ahead with plans to showcase the RF-SIM technology at the Expo.

The contactless-chip interface and antennas in the SIMs operate at the 2.4 GHz frequency–strong enough to penetrate through most handsets to communicate with readers. Because it is using nonstandard contactless technology, however, China Mobile has had to bankroll the rollout of new terminals at the retail point of sale and transit gates, as well as installing readers at entrances of Expo venues.

The telco has planned a national rollout and as of March had ordered 1.1 million RF-SIMs and 15,000 POS terminals, according to a China Mobile official. The telco, however, has not issued or deployed all the SIMs or terminals it had ordered, sources told NFC Times.

China Mobile, which has 540 million subscribers, has said it never abandoned NFC technology, but rolled out RF-SIMs in part because there are no NFC phones available. Unicom, UnionPay and Chinese banks threatened by the telco’s move into payments and other services may not be buying that explanation.

In any case, it appears that Chinese subscribers will be able to tap their phones to pay with two types of contactless technologies at the Expo 2010. It remains to be seen which one will emerge from the world's fair with more transactions.