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Table of Contents

Lead Story

Will easy money flow to acquirers and ISOs?

Patti Murphy
ProScribes Inc.

News

Industry Update

Financial pressures on Square appear to mount

Heartbleed offers chance to hit 'Reset'

Insider Technologies takes Sentra on the road

Features

Improve merchant retention: Five quick steps

Mobile payments update: An overview on HCE

Jeff Crawford
First Annapolis Consulting

Marketing success in the mobile age

Views

Voices from Transact 14

Education

Street SmartsSM:
A Square peg in a round industry - part 2

Tom Waters and Ben Abel
Bank Associates Merchant Services

Debunking four myths about our future

Jeff Fortney
Clearent LLC

Lower your data breach risk, a mathematical approach

Jake Young
SecurityMetrics

Company Profile

Nationwide Payment Solutions

BPC Banking Technologies

Rapid Advance

New Products

Innovation to facilitate mobile commerce

SwipeSimple
CardFlight Inc.

Mobile card-linked offers for SMBs

OfferPipe
TranSEND Inc.

Checkout made easy

Forte Checkout
Forte Payment Systems

Inspiration

One thing at a time

Departments

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

May 12, 2014  •  Issue 14:05:01

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Mobile payments update: An overview on HCE

By Jeff Crawford

Editor's Note: Editor's Note: This article is reprinted from First Annapolis' Navigator, March 2014 edition. Copyright First Annapolis Consulting; reprinted with permission. All rights reserved.

In late October 2013, Google announced an update to its mobile phone operating system. Android 4.4 (KitKat) changes the way in which the mobile device can interact with an installed near field communication (NFC) antenna. This feature, known as Host Card Emulation (HCE), has the potential to shape the future of mobile payments. HCE is an open architecture that allows mobile applications to emulate a contactless smartcard.

Unlike traditional NFC transactions that rely on an embedded or SIM card Secure Element (SE), HCE is a purely software-based solution. This new approach is significant for the industry because: 1) it takes control away from mobile network operators (MNOs) who control access to a mobile device's SE and, 2) it creates new possibilities for using a phone's NFC feature. While many questions remain, HCE has the potential to simplify the way in which issuers and cardholders load payment credentials and complete transactions.

HCE works by storing payment credentials on a remote cloud rather than the SE (see Figure 1). Conceptually, a mobile application could be programmed to send requests to allow access to these credentials via a secure token. This token would then be passed via the phone's NFC antenna to another contactless reader to complete a payment transaction.

A key requirement is ensuring that the token is recognized by the reader as a valid payment credential. In late February, the two leading payment acceptance networks, Visa and MasterCard, addressed this issue by updating their contactless payment specifications, PayWave and MasterPass, respectively, to read and accept these tokens.

This development may prove troubling to some mobile wallets, like the MNO-led Isis, which relies on the SE approach. Isis currently requires card issuers to integrate with a Trusted Service Manager (TSM) to facilitate access to a device's SE. HCE provides an alternative to TSM integration, which can be expensive and time consuming. To date, only a few European banks have explored HCE deployment, but there are service providers that are prepared to enable similar solutions in the U.S. market.

Visa and MasterCard have also independently announced their intentions to provide software development kits that would allow issuers and other potential wallet providers to write HCE applications that conform to the existing contactless payment specifications.

Although it is too early to tell if HCE will be the long-awaited catalyst that leads to meaningful mobile payments adoption, HCE is a promising development with the potential to reduce some of the legacy barriers that have slowed progress to date.

Furthermore, the HCE approach could be used to store and pass a variety of other credentials, such as offers, loyalty credentials, and transit and ticketing information, which support payment transactions. While HCE by no means addresses all hurdles related to meaningful mobile payments adoption, including the requirement for merchants to deploy the necessary contactless readers, it is a potential "game changer" that should be monitored closely in the months to come.

For more information, please contact Jeff Crawford, Manager in the Deposit Access practice, specializing in Mobile Payments, jeff.crawford@firstannapolis.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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