Final answer:
The connection type used for making a retail purchase by placing a smartphone near the merchant's reader is NFC (Near Field Communication), which enables secure contactless payment.
Step-by-step explanation:
When a user pays for a retail purchase by placing a smartphone next to the merchant's reader, the mobile device connection being used is NFC (Near Field Communication). NFC is a form of contactless communication between devices like smartphones and payment readers. It allows the user to wave their phone over the NFC-compatible reader to transmit payment information securely and complete the transaction.