Alternative Finances

One Small (HCE) Step Towards the Cloud?

Hoping to give Near Field Communication (NFC) payments a strong kickstart, both Visa and MasterCard this week announced cloud-based solutions that give merchants and banks more options for delivering and supporting mobile contactless transactions. Both card brands’ solutions leverage Host Card Emulation (HCE), an open architecture that enables payments and other NFC services, including loyalty programs, building access and transit passes. The Android OS KitKat 4.4, which rolled out in November, supports HCE and is being rolled out on many Android-driven devices.

Apple iOS devices do not yet directly support NFC, though various vendors offer sleeves to enable iPhones to support the technology. In its announcement, MasterCard noted that its specification for using HCE was developed over the past year with Capital One, which used the test to explore ways to commercially deploy an NFC-based offering, and Banco Sabadell, which says it was pleased with the ease and speed in which participants were able to add their payment cards to their NFC phones.

Matching Issuer Branding Desires

In an interview with Market Platform Dynamics, James Anderson, MasterCard group head and senior vice president for mobile and emerging payments, noted that a specification for adding PayPass functionality to a mobile device without a secure element will be published later this year. Some financial institutions will then test the service, with launches becoming more recognizable to consumers in 2015, he said.

(Jump to 2:39)“For contactless payments, this will give [issuers] a path forward that is fully aligned with their preferred model of leveraging their own brand and their customer relationships,” Anderson said in the interview.

Not A Move Away From Secure Element Solutions The move also will not hinder the card brand’s support for embedded and SIM-based secure-element solutions, including those being done by telcos and others. Instead, adding an HCE alternative will simply help to speed up the process of bringing NFC-based solutions to market, Anderson said.

(Jump to 3:49)“This is not an ‘either/or;’ this is an ‘and,’” he said, referring to the impact the spec might have on MasterCard’s telco relations. “This is something we’re adding, and it’s something that creates an opportunity.”

MasterCard worked with Cap One on the initial pilot and with Banco Sabadell on a European pilot. Lessons learned in both will drive additional deployments this year with other financial institutions, MasterCard said in its release. Visa said its announcement similarly was driven by the introduction of the new Android HCE feature, noting that HCE will allow Android devices to emulate a smart card, enabling users to “wave-to-pay” with their smartphones, “while permitting financial institutions to host payment accounts in a secure, virtual cloud.”

Android Use Is Growing Citing data from International Data Corp., Visa said 78 percent of smartphones sold in Q4 2013 ran on the Android operating system, thus making HCE a viable NFC platform. Visa will support clients who are hosting the Visa account data on secure elements in smartphones. It also is extending its Visa Ready Program to support those institutions that wish to securely deploy Visa accounts in the cloud.

Visa says it will provide several layers of security to protect payment accounts in the cloud, including at the Visa network, application and hardware levels. Its multilayered defense against unauthorized account access will include one-time use data, real-time transaction analysis, payment tokens and device fingerprinting technology. A year ago, MasterCard and Visa made similar announcements designed to push mobile payments.

MasterCard introduced a new hosted digital service called MasterPass, which supports mobile applications that use QR codes, NFC or other technologies. Visa’s announcement, which was that Samsung would embed the payWave applet into all of its next-generation smartphones that support NFC, was focused mostly on NFC technology. That deal enabled financial institutions to launch mobile payment services quickly and to a large audience all at once, enabling them to scale programs almost instantaneously. To learn more about how MasterCard’s HCE spec and Anderson’s views on where the mobile market is headed, listen to the full podcast by clicking below.

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