Planning to pre-load a wallet for NFC payments.
The partnership aims to take contactless mobile payments to Deutsche Telekom's 93 million mobile customers across Europe, storing the app in the operator's SIM cards.
It starts in Poland later this year, with German consumers eased into the project with a trial using tags and cards.
Mastercard is getting first dibs, but in time the wallet service will be opened to other issuing banks and partners.
Interestingly, the project will be managed by Deutsche Telekom's subsidiary ClickandBuy, which has an e-money licence so in theory there could be a chance to offer NFC payments from the phone bill at some point.
Thomas Kiessling, chief product and innovation officer for Deutsche Telekom said, "This is a huge step on our way to increase mobile payments. With MasterCard we have a well-known and experienced partner generating growth in this important market segment.
We want to build a comprehensive ecosystem around mobile payment, helping Telekom to realize its strategy of being the first choice for customers regarding connected life and work."
The news certainly raises the stakes in the noisy mobile payments space – and adds another layer of confusion.
It's similar to other operator/card deals such as the one between UK-based Vodafone Group and Visa.
That project will put a a prepaid Visa payWave app into NFC enabled handsets in five countries by next February.
Operators certainly want a part of the contactless payments market, but some are going it alone while others are attempting to collaborate with their fellow networks on a collective scheme (Isis in the US, Oscar in the UK, WyWallet in Sweden).
Meanwhile, the card companies are hedging their bets by also working with handset companies and even launching their own stick-on NFC chips.
Deutsche Telekom's Mastercard deal represent a unilateral move while it and fellow German networks work on the NFC-enabled next generation of mPass – the cross-operator 'pay by mobile' platform.