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A form of near-field communication that does not require a secure element to complete a mobile payment now has the formal backing of card brands MasterCard Inc. and Visa Inc. Each of them announced today their respective contactless payment schemes support so-called host card emulation.
Host card emulation got a big boost last fall when Google Inc. included it in its Android 4.4 KitKat mobile operating system. SimplyTapp devised technology that allows Android to exploit host card emulation. Host card emulation allows NFC transactions to take place without a secure element in the mobile device, either as a SIM card or as an embedded chip. Typically, mobile network operators control the secure element and charge a fee to access it.
With SimplyTapp’s technology, the NFC chipset still receives data from the POS reader but routes them instead to an NFC service manager, which is part of the Android OS. This lets any application on the phone act on the instructions. Payment credentials, meanwhile, reside on a remote server.
MasterCard has tested its specification with Capital One in the United States and Banco Sabadell in Europe for technical feasibility and user experience. It would not release more test details.
The specification will expand the availability of mobile contactless payments for consumers, a MasterCard spokesman says. MasterCard says it will publish the specification by June 30. Consumer products incorporating it are dependent on schedules set by financial institutions, the spokesman says.
“We continually look for new ways to deliver secure, convenient payment solutions for our customers,” a Capital One spokesman says. “Host card emulation is one example of that.”
He added that the issuer has no launch date for products using the technology, “but we are looking forward to providing this option to our customers very soon.”
Contactless payments via mobile devices will advance because of the specifications and the availability of NFC-compatible smart phones, says Cherian Abraham, mobile commerce and payments lead at Experian Global Consulting. “Retailers and financial institutions should look to building end-to-end mobile experiences that wrap around loyalty and payments to leverage this,” Abraham says.
Visa says it updated its contactless PayWave specification to accommodate the cloud-based nature of host card emulation mobile payments. It also is providing a software development kit and developing a new platform to enable issuers to use payment tokens instead of a 16-digit payment account number.
Visa and MasterCard’s support for the technology could be a boon for efforts to entice consumers to use their mobile phones as payment devices, says Nick Holland, senior analyst of payments at Javelin Strategy & Research, Pleasanton, Calif.
The backing of the two largest U.S. card networks for host card emulation invokes the potential for a near-field communication renaissance, he says. “The ground is being prepared for an international push back into mobile payments with host card emulation as the means of doing it,” Holland says. It could get around some issues with mobile-operator control, he notes.
Another factor in the technology’s favor is the re-terminalization of the U.S. payments system with point-of-sale devices that accept chip cards that adhere to the Europay-MasterCard-Visa standard. Many of these terminals also have built-in contactless readers, Holland says, which may aid contactless payments growth.
Host card emulation may also provide some fraud mitigation, he says. Card fraud tends to migrate online when EMV is implemented for card-present transactions, he says. “We will see a more holistic response to effectively dealing with card fraud and plugging the gap, when fraud migrates to card-not-present transactions,” Holland says.
Though host card emulation may eliminate the fees wireless carriers charge to enable an NFC transaction, Steve Mott of Stamford, Conn.-based BetterBuyDesign, is skeptical of the Visa and MasterCard moves.
“I expect the ancillary services Visa’s planning to build around HCE will also result in more issuer fees,” Mott says in an email. That is an argument he has about mobile and digital transactions of this sort. “HCE is quite handy because it squeezes the carriers out—not because it promises a better deal for merchants, or even issuers and consumers,” he says. “Tigers don’t change their stripes, and unless real innovations in HCE can actually materialize—without being burdened by additional network-required services and security protocols—this development is simply another arrow in their market-power quiver.”
