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Cutting Complexity Out of Mobile Payments

The announcement by MasterCard and Visa that they will support Host Card Emulation could set a simpler path for mobile payments innovation and adoption.

Sadly for many players in the mobile payments market, NFC technology has remained far from reaching its full potential in payments ever. The biggest reason often cited for the lack of progress in NFC-based mobile payments has been the lack of NFC point of sale systems, and the cost of upgrading existing systems to accept NFC.

But other issues have plagued NFC as well, one of them being that the payments industry chose a path to NFC-based payments that strangled its potential, says Dave Birch, global ambassador for Consult Hyperion, an IT consultancy. “When NFC was first put into handsets, the opportunity to connect with the local environment was seen as a piece of technology that could really change things… The industry opted for maximum security and minimum infrastructure change by taking the chip and PIN app and storing it in the phone,” Birch explains.

The chip and PIN app traditionally has to be stored in a secure element in the handset’s SIM card or an embedded element, requiring the card issuer to rent space for the secure element from the telco. This has proved to be too complex of a model for issuers and mobile network operators, Birch notes. BankInter in Spain, which owns its own mobile network operator, even found the model too complex, and introduced technology to enable NFC payments that doesn’t rely on a secure element in the device.

Last month MasterCard and Visa announced that they would be testing NFC payments through Host Card Emulation, eliminating the need for issuers to rent a secure element from telco’s. This could be a big boon for mobile payments as it transforms the model for deploying NFC-based apps and wallets. If a bank like BankInter that owns a telco couldn’t find a way to work with the old model based on a secure element in the phone, then other banks that would have to partner with telcos to rent space for a secure element should be relieved at this news.

[For More on Mobile: How MasterCard Is Pushing Mobile Payments Ahead]

Using the old model has led nowhere, as “banks and telco’s just can’t work together -- they come from different worlds and have different perspectives [on mobile payments],” Birch comments.

With Visa and MasterCard offering Host Card Emulation (HCE), issuers will be able to directly place their MasterCard and Visa branded cards on apps in the Android 4.4 operating system without partnering with telco’s, making those payments apps more attractive to issuers. “This definitely rejuvenates NFC,” Birch says.

Retailers will also be more interested now in NFC that the business model has been simplified, and the tap-and-go technology enables a better in-store shopping experience for their customers, he adds.

Even though HCE eliminates the role of the telco’s in providing NFC payments through a secure element, Birch says that the teclo’s could still play a role in providing security for mobile payments. “There isn’t much sense in storing the card credentials in the handset secure element, but it makes sense to store common authentication tools in it. The mobile payments apps could then have access to those secure authentication tools… through open API’s,” Birch explains.

NFC payments still faces the obstacle of merchant acceptance at the point of sale, but Birch points out that many merchants will likely upgrade to accept NFC when they update their point of sale systems for EMV. Even though that could still be a ways off, there is now a business model for banks interested in NFC payments that doesn’t involve complex partnerships between parties with potentially competing interests. The hope is that will drive interest from banks, retailers and other parties in mobile payments and encourage them to experiment and innovate in this space.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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User Rank: Apprentice
3/5/2014 | 1:30:04 PM
re: Cutting Complexity Out of Mobile Payments
The biggest issue has been and still is, what's the value add to the customer? If all you are doing is switching the need to carry a wafer thin plastic card to having to pull out your phone (or Android Watch) adoption will be slow. Though once POS terminals receive their mandated EMV update you will likely see a spike as people are finally able to try this out on a large scale experiment.

HCE is just switching the physical payment method, you are still forced to ride the card rails for the payment. The benefit of mobile likely lies in getting us all onto a different set of rails that has a different payment model for the retailer, who in turn can likely charge you less for using your mobile device.
User Rank: Author
3/4/2014 | 10:04:53 PM
re: Cutting Complexity Out of Mobile Payments
Good points, and it seems NFC is very limited. Also, you mention the fact that Apple devices don't have NFC, perhaps the biggest reason why it will be difficult for it to get widespread use.
User Rank: Apprentice
3/4/2014 | 9:51:04 PM
re: Cutting Complexity Out of Mobile Payments
NFC, whether done via host card emulation or the secure element on the device, has so many expensive dependencies and limited use case that its a challenged technology. Asking merchants to upgrade POS terminals is difficult. Asking handset manufacturers to include it is another expense with limited upside - which is why Apple devices don't and won't have NFC. Worse, NFC can only be used in store. What about ecommerce? Restaurants (from paper bills)? Gas pumps? In the long run, the winning solution will be software based, such as 2D bar codes, with a centralized, secure cloud, and tokenized to prevent the transmission of sensitive data over any network. A company like Cimbal ( is well positioned to capitalize on such an opportunity. NFC simply won't take off nor last the test of time.
User Rank: Author
3/3/2014 | 8:13:40 PM
re: Cutting Complexity Out of Mobile Payments
Host Card Emulation definitely seems like it will help NFC-based payments, though it remains to be seen whether NFC becomes the dominant mobile payments method in the future.
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