SimplyTapp, the Power Behind Google’s NFC Workaround, Aims at Mobile Banking

Ever since Google Inc. stunned the payments business early last month with its mobile operating system update that skirts the secure element for near-field communication, all eyes have been on a tiny startup in Austin, Texas, called SimplyTapp Inc.

The 2-year-old company, with six full-time employees, has kept busy answering questions about its technology, which forms the basis for Google’s NFC workaround, and talking to investors. Last week, SimplyTapp announced a Series A funding round from LightSpeed Venture Partners, though the parties have kept mum about the amount.

Right now, SimplyTapp’s chief target market is card issuers, especially financial institutions, Doug Yeager, founder and chief executive, tells Digital Transactions News. Since the Nov. 1 Google announcement, “there’s been a lot of calls regarding primarily issuers and how they can use this technology,” he says.

Yeager envisions banks integrating SimplyTapp’s cloud-based payments tools into their existing mobile-banking systems to allow customers to make wave-and-go payments while redeeming and collecting rewards at merchant locations. “Seventy percent of mobile phones have a mobile-banking app,” he says. “It’s used a lot, up to 15 times a month. That’s a lot of eyeballs.”

SimplyTapp’s not-so-secret sauce is a technology called host card emulation. HCE, for short, enables NFC transactions on mobile devices that may or may not have a secure element, a chip that stores users’ payment credentials. Instead, the technology lets point-of-sale readers recognize the mobile phone as if it were a contactless card but refers to a remote server, not the secure element, for the card credentials.

The significance of HCE is that it frees NFC from dependence on the secure element, which has largely been controlled by mobile carriers. Banks, merchants, and wallet developers must pay fees for access to that chip. Yeager is counting on HCE to scare up interest among issuers and kickstart NFC, which has been stuck in neutral for years.

“There has been a lot of investment from the Android community in putting NFC capability into handsets, but with very low usage,” he notes. “The telcos made it impractical for issuers, and that’s maybe a big reason NFC hasn’t been used.”

Now, with HCE officially built into Google’s Android 4.4, also known as KitKat, that could start to change. “My guess is there’s a ton of pressure from financial institutions on HCE,” says Yeager. SimplyTapp will ultimately cash in by charging issuers transaction fees or personalization fees, or both, Yeager says, when HCE “gets integrated into a live environment.”

Most observers expect the NFC-based Google Wallet, for example, to soon adopt HCE as a means of breaking an impasse with the major mobile carriers that has hampered the product almost from its launch in 2011. The carriers want to control user credentials on the phone’s SIM card as the secure element and levy fees for access. Google sees things otherwise.

But SimplyTapp could face some obstacles. Unlike the chip-based secure element model for NFC, HCE has not been certified as secure by the card networks. Also, while growing, the installed base of contactless readers in retail outlets is still tiny. It stands at 430,000, up from 280,000 in 2012, according to Boston-based researcher Aite Group LLC.

And cloud-based NFC may put off some merchants worried about Internet outages. “You have connectivity issues that have to be overcome,” says Rick Oglesby, a senior analyst at Aite.

Still, SimplyTapp’s gambit simplifies what was a complicated business for NFC. “The card-emulation model just requires so many people to be involved,” says Oglesby, referring to NFC relying on a chip-based secure element. “It’s just a very messy business environment.”

And Yeager argues the payments business has no alternative but to work with NFC. “Bluetooth isn’t there yet, bar codes are isolated to a closed loop,” he argues. “For open loop payments, the only alternative is NFC.”