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What’s Next for NFC Payments

ApplePay helped open the door for NFC mobile payments, but other players will have a say in how the market develops.

ApplePay's much-hyped release will likely give NFC mobile payments at the point of a sale a big push forward in the US. But that doesn't mean it will be the biggest player in the NFC payments market. Apple still makes up less than half of the smartphone market, and Host Card Emulation offers an avenue for other players to get in on the Android market. So even though Apple is moving the market forward, it has also created room for other players to get in on the fun.

"ApplePay will be remembered for moving everything forward. It is the big stone that will cause the ripples in the water. The effect of it is enormous. I think we will have 2,000 banks signed up for it by the end of the year. That's a lot of slow-moving companies moving very quickly," Hans Reisgies, co-founder and senior vice president of customer solutions center at Sequent, said during a discussion on NFC payments at Money2020 this week. "The fun is going to be [NFC payments] 2.0; 1.0 is done. It's ApplePay."

NFC payments 2.0 will mean other players -- issuers, retailers, technology companies -- offering their own NFC-based mobile payments solutions and building new experiences on top of the NFC point-of-sale infrastructure. Host Card Emulation (HCE) offers a path to do that in a more open, developer-friendly way, as opposed to Apple's closed approach.

[For more on Host Card Emulation, check out: Cutting Complexity Out of Mobile Payments]

"For me, what's important about HCE is that it offers people the chance to come in and develop on top of the wallets and develop the experience," Jeff Miles, vice president of mobile transactions at NXP Semidonductors, said during the panel discussion.

The fast tap-and-go payments experience enabled by NFC contactless technology is great for quick transactions at the point of sale. Customers get through the cashier line faster, meaning more business for retailers and more transactions for issuers. But Chris Gardner, CEO of Paydiant, said the NFC experience isn't perfect.

"If you want to use your five coupons and also burn a gift card in a transaction, NFC sucks for that. It sucks for drive-through transactions," Gardner said. At McDonald's drive-through windows, cashiers have to stick a payment terminal through the window to the customer take an NFC payment.

HCE's open environment could allow developers to step in with custom applications that help solve some of the issues with things like using coupons or loyalty points.

There are issues with HCE-enabled NFC deployments, such as security and merchant acceptance. But ApplePay should help solve those issues. Merchants are already switching to NFC-capable terminals as they implement EMV acceptance. And Debra Rossi, CEO of Wells Fargo Merchant Services, told us that merchants that want to get in on ApplePay will join that wave. Wells Fargo has been deploying terminals that are both EMV and NFC-enabled with its merchants for two years.

"ApplePay has created a kind of halo effect, and it's a catalyst" for NFC, Rossi said. "There is tremendous interest now. It will take time to develop, but there are some great companies behind this."

ApplePay's use of tokenization will also spread adoption of that technology, which will be key to securing HCE-enabled NFC payments, as well. Tokenization offers the key to securing payment credentials delivered to mobile apps from the cloud.

Leveraging HCE with tokenized transactions, issuers, retailers, and others can develop their own solutions for Android (which has 60% of the smartphone market).

"There won't just be one model [for mobile payments]. There will be the MCX model, and there will be bank-branded wallets," Doug Brown, senior vice president and general manager of mobile for FIS, said at Money2020. "We're bullish on the opportunities for those other models. One solution won't dominate the market. ApplePay is going to make the pie bigger for everyone."

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: Author
11/10/2014 | 12:57:02 PM
Re: New ways to pay
That's certainly an interesting scenario! Thanks for haring your insight.
User Rank: Apprentice
11/10/2014 | 12:41:31 PM
Re: New ways to pay
They also have to train clerks to explain to customers why the last-four PAN on the receipt does not match the last-four of the real credit card.  At least, the customers that look at the receipt and ask, as most are familiar with the last-four matching the real card.

Visa is relaxing the April 2014 Mandates rule requiring the last-four of the real PAN to be used when merchants print the information on receipts.  

By relaxing the rules, Merchants can print the last-four of the Token.  That seems strange, since technically the consumer should not be aware of the token values.   However, relaxing the rules allows merchants to implement ApplePay quickly:

- Merchants can implement ApplePay without modifying POS code to accept new field with last-four of real PAN.

- Merchants do not have to modify databases/apps to store the last-four of the real PAN in conjuction with token information.

At a conference in October, two merchants that are implementing ApplePay plan to print the last-four of the Token.  Imagine calling a Customer Service place about a charge on your card, and when they ask for the last-four of the card for validation you give the real PAN, but the merchant's system only has the token information...better not lose the receipt!

User Rank: Author
11/10/2014 | 9:26:49 AM
New ways to pay
I've already seen some people I follow on Twitter say they tried to pay with Apple Pay at locations that were said to accept it (like McDonald's, Starbucks etc) and the clerks looked at them dumbfounded. A big hurdle will probably communicating this new payment style and giving trainign down to the many thousands of sales clerks who work at these retail ,ocations who may not even be aware of this.
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