By AMIR EFRATI And ROBIN SIDEL

Google
Inc. is expected to disclose details about how consumers will be able
to make store purchases, redeem coupons, and get loyalty points by
waving smartphones in front of a small reader at the checkout counter,
said people familiar with the matter.

At an event Thursday in New York, the Web-search company is planning
to show off the technology, called near field communication, which is
embedded in newer smartphones powered by Google’s Android software and
that can help turn the devices into a kind of electronic wallet, these
people said.

Square, Inc., the mobile payments company that
offers free hardware to businesses for mobile phone transactions, has
introduced new software aiming at making consumers’ mobile phones their
main method of payment.

The program will launch first in New York,
San Francisco, and potentially other locations, followed by a broader
rollout, said a person familiar with the matter. Participating retailers
include Macy’s Inc., American Eagle Outfitters Inc. and the Subway
fast-food chain, said a person familiar with the matter. Retailers that
participate in the program will have upgraded terminals at the point of
sale that can read the mobile devices and provide special offers.

A Google spokesman declined to comment. The
Wall Street Journal previously reported Google was working on a mobile
payments platform with credit card and financial companies such as Citigroup Inc. and MasterCard Inc., as well as retailers and hardware makers such as VeriFone Systems Inc. and ViVOtech Inc., which make credit card readers.

Bloomberg News earlier reported on the Google announcement planned for Thursday.

Many credit card readers allow people to pay or redeem digital
coupons by tapping their credit or debit card, but newer ones built by
those companies also let people pay through NFC, including by tapping or
waving their smartphones.

The Google payments platform will allow software developers to create
mobile applications, or apps, which take advantage of the technology.

For Google, the system could help boost its digital advertising
business. The planned payment system would allow Google to offer
retailers more data about their customers and help the retailers target
ads and discount offers to mobile-device users near their stores, these
people said. Google, which hopes to sell ads and discount offers to the
local merchants, isn’t expected to get a cut of the transaction fees.

In addition to receiving targeted ads or discount offers, users could
manage credit-card accounts and track spending, loyalty points and
other things through applications on their smartphones.

Many mobile app developers have said they could use NFC technology in
the future. For example, Pageonce Inc., which has a mobile app that
lets consumers control their finances and bills after they have
connected their bank and credit card accounts to the app, has said it
sees NFC as a useful technology for its users.

Users who are at a gas station could see that one of their credit
cards will give them 5% cash back on their gas purchase. The consumers
could choose to pay with that card and swipe their phone next to an
NFC-enabled credit card reader, if the gas station has one.

Google has already teamed up with smartphone maker Samsung
Electronics Co. to embed NFC technology into phones that use Google’s
Android software, while other hardware makers have said they would
follow. Google will also partner with wireless carrier Sprint Nextel Corp. to offer NFC technology to consumers in its network this year, said one person familiar with the matter.

The partnership with Google puts Sprint ahead of its competition. Isis, a joint venture between AT&T
Inc., Verizon Wireless and T-Mobile USA, to let users make payments and
redeem offers via their smartphones will not begin trials until
mid-2012.

The Google system will also face competition from players such as
Square Inc., which lets businesses accept credit card payments just by
attaching a small reader to a smartphone or tablet. Square said it will
give those businesses data on consumer-purchase behavior and let them
send offers to consumers’ mobile devices, among other things.

Write to Amir Efrati at amir.efrati@wsj.com and Robin Sidel at robin.sidel@wsj.com