Mobile wallets utilizing Near-Field Communication (NFC) technology for contactless point-of-sale payments have been around since 2011 but have yet to really catch on. While Google Wallet and others rely on NFC to communicate with compatible payment terminals the mobile carriers have been restrictive on allowing these apps to access the Secure Element where payment credentials are stored. Host Card Emulation circumvents this issue, meaning Google Wallet and other mobile NFC contactless payment applications may soon be available on a lot more devices.
Many believe that consumers in the U.S. aren’t ready for mobile contactless payments and that using a mobile device to pay at the register today just isn’t as easy or as convenient as using a credit card. But there are many others who disagree and point out that there are plenty of people out there who would like to pay with their smartphone at the point-of-sale, if only they had the right device and mobile carrier that is compatible with their preferred brand and type of payment.
One issue hindering the adoption of mobile contactless payments is the fact that the market is fragmented. Google Wallet launched in 2011 and was very limited on the types of devices that could be used to make POS payments, starting with one NFC enabled Android that had to be activated by Sprint. Verizon soon started carrying the same exact device, but blocked Google Wallet while forming a mobile wallet joint-venture of their own with AT&T and T-mobile called Isis, although they are now in the process of changing the name.
Now say you wanted to use the Isis mobile wallet today for mobile contactless payments. This can be done on any NFC enabled device from one of the three carriers behind the joint-venture, but the compatible payment methods are limited. Isis partnered with card issuers Chase, Wells Fargo and American Express, meaning any card issued by one of these organizations can be used, but for any other payment card the consumer would be required to add money to a prepaid American Express Serve account that would fund the Isis mobile wallet.
The inability for many consumers to be able to pay with the credit and debit cards they already have, on the mobile devices they already have, and with the mobile wallet application they want to use has undoubtedly slowed consumer adoption of mobile contactless payments. But Host Card Emulation (HCE) technology, which is now available on nearly 250 million Android devices worldwide, can change this by eliminating the need for carrier participation.
The mobile carriers control access to the Secure Element on the mobile devices used by their customers, and this is where payment credentials are stored in the device. Mobile wallet apps like Google Wallet and Isis need to access the Secure Element to access these credentials and transmit them via NFC to facilitate the transaction, but carriers are selective on which apps they allow to access the Secure Element.
Host Card Emulation (HCE) is a software-based operation that enables mobile wallet apps to access the payment credentials needed to make payment. The HCE supports access to the credentials over a secure cloud or on the mobile device’s host processor, and the mobile wallet no longer needs access to the Secure Element.
In February, 2014 both Visa and MasterCard announced their support of Host Card Emulation for NFC-based mobile payments. This is relatively new technology, but HCE is now available on nearly 250 million smartphones worldwide, all Android devices version 4.4 (KitKat) or higher.
Host Card Emulation may be the catalyst NFC and mobile contactless payments need to reach mass adoption. HCE effectively removes the carriers ability to restrict their devices from using certain NFC mobile wallet apps by not allowing access to the Secure Element, which should open many more payment option and device possibilities as more HCE/NFC smartphones hit the market.
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