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The Mobile Payment Wars: Will HCE be a game-changer for NFC

Over the last two years or so, the mobile payments landscape has been abuzz with the supposedly disruptive potential of near field communications (NFC) technology. Predictions have been made about the imminent obsolescence of plastic cards and controversies have erupted over Apple’s refusal to acknowledge NFC and rumors about Verizon blocking Google Wallet on its Galaxy Nexus phones. However, in spite of all the excitement, the technology is still not dominating the payments space as predicted, and adoption has been slow. One of the primary reasons for this has been the customer ownership conundrum, an issue I had raised in a previous post on mobile payments.

Dependence of NFC on the Secure Element and the MNOs

Traditionally, the NFC-based mobile payment app had to be deployed on the phone’s secure element, which, in most cases, was the SIM card. The NFC controller would communicate with the app through a Single Wire Protocol (SWP). By eliminating the mobile phone CPU/OS from the transaction workflow, this mode of payments ensured that no malware could infect the payment message, thereby reducing vulnerability to hacking and fraud. However, another implication of this flow of information was the introduction of an additional entity in the transaction, the mobile network operator (MNO), consequently raising questions about the ownership of the customer. The cost of transactions was also higher since the MNOs could charge a fee for hosting the app or demand a commission on every transaction. Further, MNOs have also started offering payment and wallet solutions, encroaching upon the domain of banks and financial institutions.

HCE: Eliminating MNOs from the Payment Workflow

Host Card Emulation (HCE), a technology that has been adopted by Google in its Android Kit Kat OS, allows payment solution providers to bypass the secure element in mobile payment transactions, thereby negating the role of MNOs. It enables HCE APIs to communicate directly with the NFC controller, which is no longer hard-wired to a secure element. The downside of this technology, however, is that sensitive information is exposed to the mobile devices OS and the resident applications. To resolve this, payment solution providers enable storage of payment credentials on a cloud-based secure element. A secure channel allows the HCE enabled payment application to retrieve tokenized and encrypted packets of information. These tokens can be temporary, valid for either a single transaction or an instance.

Will HCE Redefine m-Commerce

With the elimination of the secure element controlled by MNOs, retail banks will now be able to focus their efforts towards the development and enhancement of online and mobile apps. Also, with better clarity of customer ownership and the elimination of an additional player in the payments value chain, merchants are likely to get more enthused about NFC. As adoption becomes more and more prevalent, merchants and consumers will also gain confidence about investing in a new technology, without the risk of it becoming redundant or being replaced by a competing technology.

As the major hurdle in adoption of NFC has traditionally been the ambiguity in the ownership of the secure element, the introduction of HCE-enabled NFC payments could well be the pivotal factor that could ensure that NFC delivers on its promise and finally justifies the hype surrounding it.

Watch this space! HCE could be the next big thing for mobile payments.


Comments: (4)

Paul Love
Paul Love - Konsentus - Nottingham 20 March, 2014, 09:52Be the first to give this comment the thumbs up 0 likes

For a long time NFC has been a technical solution looking for a problem to solve.

With contactless POS more widely available, and now with HCE overcoming the Telco issues this looks like becoming a more widely available payment method.

As a payment “geek” I am keen for NFC to succeed, but do the consumers feel the same way, and when will we see mass adoption?


A Finextra member
A Finextra member 20 March, 2014, 11:11Be the first to give this comment the thumbs up 0 likes

An excellent summary Tushar

A Finextra member
A Finextra member 24 March, 2014, 13:28Be the first to give this comment the thumbs up 0 likes

HCE doesnt change anything, it really doesnt. All it does is open up NFC contactless mobile payments potentially, without the telco being involved. Does it add any value? No. Even if a solution or provider claims to addvalue with coupons etc, then the merchant needs to sign up to that particular provider, which removes the whole open loop nature of contactless...If that's the case, why embrace a card scheme at all, why not opt for a payment solution that reduces your costs and dependence on card scheme rails? Starbucks anyone?



Daniel Eckstein
Daniel Eckstein - Abrantix AG - Zurich 25 March, 2014, 07:38Be the first to give this comment the thumbs up 0 likes

I think HCE could have the potential to be a total game changer. Banks do not like to be dependent on Telco, therefore the whole NFC mobile payment got stuck. Nothing is happening, besides some small trial phases. HCE now enables banks to cook their own soup, without any help of the Telco’s. That puts the banks back into business and they can control the whole value chain. Unfortunately, HCE is only available on Android 4.4 and higher phones. However, I hope this will change and all phone manufacturer will incorporate HCE. Then HCE could really be a game changer.


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