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Mobile operator Telefónica group and Visa Europe have expanded their payments partnership to Telefónica’s European operations, marking the third tie-up between a major European mobile operator group and international payment network this year.

The deal, like the partnership announced last week by Deutsche Telekom group and MasterCard Worldwide, and an earlier agreement announced by Visa and Vodafone Group, will help Telefónica make further inroads into the payments market in Europe, including in NFC-enabled mobile wallets the telco plans to introduce in its various markets. The tie-ups promise to create more headaches for major banks in Europe.

Visa and Telefónica have already been working together in the UK, with a virtual and physical Visa-based O2 Money card in Telefónica UK’s O2 Wallet introduced this spring. The wallet is expected to have an NFC component–with a Visa payWave application issued by O2 itself–as early as this year. 

The deal, announced late last week, extends that relationship to other major Telefónica O2 branches, including those in Germany and in the telco’s home base of Spain. Both have been active in NFC trials. The Telefónica O2 operator in the Czech Republic is also thought to be preparing to launch NFC.

According to the new announcement, the agreement formally establishes Visa Europe as Telefónica’s “preferred partner for the issuance of branded payments cards and the development of related mobile payment services” on a European level.

“We can’t give any specifics where we haven’t yet announced details of products in local markets, but we will be working with Visa in each of Telefonica’s European markets–Spain, UK, Ireland, Germany, Czech (Republic), Slovakia,” a spokesman for Telefónica Digital, the group’s digital innovation arm, told NFC Times.

The Telefónica-Visa Europe deal follows last week’s announcement by Deutsche Telekom and MasterCard of a partnership that will see the telco’s PTC branch in Poland launching an NFC-enabled mobile wallet this year containing a MasterCard PayPass application. Deutsche Telekom’s ClickandBuy payments subsidiary, which has a European e-money license, will issue the application.

The mobile operator plans to expand with the PayPass-based service in Germany and perhaps to other countries next year.

Visa and Vodafone announced their own deal in February that would see Vodafone introducing a Visa payWave application in its mobile wallets in five or more countries, including the UK, Germany and Turkey by February of 2013, according to the announcement.

While all three telco groups say they will open their mobile wallets to applications issued by major banks, along with such other applications as ticketing, couponing or access control, it’s clear the operators see revenue from their own co-branded payment applications as a key part of the business cases for their mobile wallets and NFC rollouts.

The telcos are expected to issue prepaid or prepaid-like payment applications for their wallets, either by themselves or through small issuers with banking licenses. The telcos plan to take a cut of the merchant transaction fees each time consumers tap their phones to use these applications or companion co-branded cards.

That’s in addition to rental fees the operators plan to charge banks and other service providers to put their secure NFC applications onto the telcos’ SIM cards. Deutsche Telekom has said it intends to take a cut of transaction fees even for the applications issued by banks. Other big telcos might have the same idea in mind.

The tie-ups with Visa and MasterCard not only assist the mobile operators to expand into the payments market but also helps them gird against the entry of such over-the-top players as PayPal, Google and, perhaps, Apple into the mobile-commerce space.

The services in Telefónica’s mobile wallets will vary according to the market. In the UK, Telefónica is taking an aggressive posture through its O2 Money financial services unit, with plans to seek its own e-money license.

On the other hand, it remains to be seen what Telefónica will do in Spain. It has worked with banks in NFC trials.

In Germany, Telefónica O2 has taken a leading role in the mpass consortium, which includes Deutsche Telekom and Vodafone Germany. The group plans to introduce its own payment scheme at the physical point of sale with NFC phones.

This would compete with Visa and MasterCard, though the group has yet to reveal how it will spur deployment of contactless point-of-sale terminals in Germany supporting its brand. Mpass backers say they plan to launch a trial of mpass using contactless stickers by September before introducing the service on NFC phones before the end of the year.

Mpass could potentially sit alongside a Visa-branded Telefónica application in the telco's planned mobile wallet in Germany.

But Telefónica is not placing all of its bets for payment on Visa or on local initiatives, such as mpass.

The group in March announced a partnership and investment in U.S.-based online mobile payments company Boku, a move that could further Telefónica’s plans to introduce payment in its planned mobile wallets.

Boku in February unveiled a new offer, Boku Accounts, which it said could enable mobile operators to roll out telco-branded prepaid payment cards, as well as prepaid applications. One option is to use NFC phones and passive contactless stickers. 

A Telefónica Digital spokesman at the time told NFC Times the telco was “certainly looking at how they (Boku) can help us with capabilities for both online and offline (payment).”

Telefónica and MasterCard earlier announced a mobile-payments joint venture, but it only involves Telefónica's Latin American operations and will promote money transfers, airtime reloads and other network-based payments.