A few weeks ago, Visa and MasterCard announced they would be supporting Host Card Emulation (HCE) as a solution for mobile NFC payments. This marks a significant step change that could turn mobile payments into a mainstream payment solution sooner than expected.
Jon Banks, Director of Payment Solutions at The Logic Group examines exactly how this could change the payments industry forever.
1. What is Host Card Emulation?
By using HCE, card data is stored in a ‘cloud’ rather than on the secure element of the phone. Mobile payments via NFC can then be made through an app on the phone wherever contactless cards are accepted. From a security perspective, this removes some of the concerns around storing sensitive data on the physical device itself and makes building the wallet more flexible and easy to do for retailers and banks.
2. Why is this announcement so important to the payments industry?
Up until now, mobile payments adoption has been inhibited by a number of barriers. The need for collaboration amongst a complex set of stakeholders has led to a congested mobile payments ecosystem. Mobile network operators, trusted service managers (TSM) and SIM providers along with the more traditional payments ecosystem of banks, processers, cards and acquirers all working together has slowed development due to the numerous differing approaches to creating a mobile solution.
3. How will this change the mobile payments ecosystem?
It simplifies the business model for NFC-enabled services reducing the need for such a wide ecosystem of partners. This means banks and retailers are more readily able to deploy both NFC enabled payment and value-added services without the reliance on a physical secure element, SIM based or otherwise. Whilst there is a general buzz around HCE, there is still recognition that the traditional hardware secure element solutions have a role to play, with data being secured in the most appropriate way for the application being deployed.
4. So what next for retailers?
For retailers this is encouraging news. Together with more NFC enabled phones and contactless ready PIN entry devices; app based payments, leveraging HCE, can help quicken NFC adoption.
Ultimately, mass adoption will be dependent upon customers seeing the value in the proposition of using their mobile phones to pay and feeling safe doing so. A key part of the answer lies in the opportunity to make the mobile the conduit for bringing payments and loyalty together.
Mobile devices give retailers this opportunity to add value to their customers’ shopping experiences by offering real-time in store rewards that are highly relevant and delivered at the point of sale. It will be these types of interactions that will pave the way for stronger relationships between retailers and customers in the future.