With high street chains adopting smart card payments, and increasing numbers of devices launching with Near Field Communication (NFC) integration (including rumours that it will be included in the next iPhone), there’s little doubt that contactless technology is set to transform the way we pay for goods and services.

Now, two UK startups have announced a merger that will see them become a European leader in the space.

ACT and sQuid are to join forces as Smart Transactions Group, in a merger valued at £53.3m ($87m). Up to now, both companies have provided smartcard payment solutions in the UK market in the retail and public transport sectors. The newly combined business will be moving into the NFC and mobile payments space, and rolling out pre-pay travel purses, integrating transit and eMoney cards.

The two startups are already responsible for 85% of the UK’s smartcard market. ACT’s systems support 80% of ITSO transit cards issued in the UK, while sQuid is on track to handle 1.7 million transactions per month by Q3 2011 and 10 million transactions for the year. Smart Transactions Group will now be looking to expand into new markets such as Kenya and the UAE by offering small value smartcard payment services there.

Look out for a lot more news on contactless payments throughout 2011, it’s a fast-moving space and Smart Transactions Group joins players such as PayPal, Visa and Google in bidding to handle our mobile money. In the UK, Quick Tap, the country’s first mobile contact payments system was launched last week. Meanwhile, Twitter co-founder Jack Dorsey’s other company Square is busy innovating with other ways to take our wallets to the cloud.