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GUEST COMMENT Could HCE be the catalyst for the mass adoption of the mobile wallet?

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There's been an increased buzz in the world of contactless mobile payments lately. Announcements by major industry players such as Visa, MasterCard and Google in support of Host Card Emulation (HCE) mark a potential turning point for NFC-enabled mobile wallets.

But what do these announcements signify for retailers and what will the payments and loyalty landscape look like moving forward as a result? Here I'll look at how HCE differs from SIM-based solutions, the benefits mobile NFC payment solutions can offer to retailers and why this could change customer engagement with retailers forever.

Instead of storing data on the secure element of the phone, HCE enables service providers to deploy NFC-enabled payment and value-added services using only software running within a handset. While for consumers the everyday use of HCE enabled services is almost entirely transparent, the implication for merchants and service providers is profound and could well be the trigger that sees mobile NFC finally becoming mainstream.

Until now, NFC-enabled mobile payment has been inhibited by a number of barriers. The need for collaboration among a complex set of stakeholders and differing approaches to NFC has led to a congested mobile payments ecosystem. Mobile network operators, trusted service managers (TSM) and SIM providers, along with the more traditional payments ecosystem of banks, processers, cards and acquirers, all working together has slowed development. HCE simplifies the business model for NFC-enabled services by reducing the need for such a wide ecosystem of partners and enabling individual players to consider deploying their own branded services. This means banks and retailers would be more readily able to deploy both NFC-enabled payment and value-added services, without the reliance on a physical secure element, SIM-based or otherwise.

The move to contactless payments

Contactless is already becoming well established in everyday payments, with many retailers already having updated their PIN entry devices to take advantage of contactless. Over 200,000 NFC-enabled terminals are already deployed in the UK; meaning consumers are becoming increasingly familiar with simply tapping their plastic card to make a payment.

Contactless payment is also gaining traction in non-retail environments, for example TfL’s rollout on their bus network. Equally, an increasing number of mobile handset manufacturers are now including NFC as standard, with comprehensive support provided in underlying platforms such as Android, Blackberry and Windows Phone. Even Apple is now rumoured to be considering NFC to enable mobile wallets on its devices, meaning the ecosystem is becoming increasingly well-developed to make this technology completely mainstream.

SIM-based or HCE NFC solutions, which will win out?

With Google’s recent decision to remove support for SIM-based NFC in pre-Kit Kat handsets, it seems that there is also growing acceptance and recognition of HCE as a viable alternative to traditional hardware secure element solutions. To date, there have been numerous mobile wallet approaches, for both payments and loyalty, from a range of players in the payments ecosystem. A variety of solutions on the market have approached the mobile wallet from a number of different angles in a bid to find the most effective and secure solution to encourage adoption.

Recent support for HCE by the three big industry players in quick succession indicates the increasing industry consensus for this type of solution over the current SIM-based options. Mobile payments via NFC can then be made through an app on the phone, exchanging tokens that represent payment card details. While there is an excitement around HCE and recognition that tokenised reference based payment solutions are viable, the HCE enabled end to end NFC solution is not yet mature and standards are still forming in this area. The SIM may yet have a role to play here, acting as a protected credential holder.

Additional layers of security, such as ARM’s TrustZone execution environment, can be added to both HCE and SIM based solutions to further mitigate security risks.

Moving beyond payments to build on customer interactions

Beyond the world of mobile payments, HCE could also offer a myriad of opportunities for loyalty, ticketing and security pass providers to name a few.

Mobile devices offer the opportunity to add value to customer shopping experiences and act as an additional marketing channel to engage with consumers. Linking location, payments and loyalty on a single device, retailers have the chance to offer real- time in store content that is highly relevant and delivered instantly at the point of sale.

Driving adoption from 2014

The recent endorsements for HCE have signalled a change of pace for mobile wallet development in 2014. By addressing a number of challenges and complications that have inhibited progress to date, HCE could facilitate widespread adoption much more quickly. The high street is still suffering a rollercoaster ride from month to month. The advent of the mobile wallet will help enable brands to create a more personalised, convenient and relevant dialogue with consumers. Only by connecting with consumers via timely and relevant content, in a secure and trusted manner, will brands be able to make the mobile wallet the success it deserves to be.

Jon Banks is director of payments and loyalty at The Logic Group 
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