Visa and MasterCard have formally thrown their weight behind Hosted Card Emulation (HCE), a technology for hosting m-payment and digital wallet capabilities in the cloud rather than on the Secure Element (SE) in a device, an approach that is highly disruptive to the SIM centric NFC model favoured by operators.
Eden Zoller, principal analyst at Ovum comments:
“MasterCard has announced that it will publish a specification for HCE NFC payments, while separately (but on the same day -19/02) Visa said it will incorporate support for HCE payments into the Visa Ready program.
“The build up to Mobile World Congress is also seeing technology providers announce their support for HCE based cloud payments, including a solution developed by m-commerce platform provider Proxama and security specialist Cryptomathic. We expect to see further HCE related announcements at main event next week.
“The backing of Visa and MasterCard is a significant endorsement for HCE that without the support of the major card schemes would not be able to flourish. The technology received another major boost last November when it Google revealed that HCE had been baked into the latest version of the Android OS (Android 4.4, or KitKat). This is highly significant for the future of cloud based digital payment implementations enabled by HCE, as Android based devices now dominate smartphone shipments. Both Visa and MasterCard have readily acknowledged that support integration of HCE into Android was a key motivation in their decision to embrace the technology. However, even the rise of HCE does not necessarily mean that the future of NFC is guaranteed, as there are wider issues for NFC related to consumer and merchant acceptance. For more details please see the Ovum report Mobile Proximity Payments and the Prospects for NFC.
“The prospect of a mobile proximity landscape dominated by cloud based deployments is not a scenario that operators relish. Mobile operators are driving NFC implementations based on the SE embedded in SIM cards, because this gives them maximum control over service provisioning, the m-commerce business model and revenue flows. The model and terms imposed by operators can be restrictive for third parties, notably the SIM rental model adopted by some operators. Under the SIM rental model third parties gain access to operator NFC SIMs in return for a “rental fee”, but have limited control over service provisioning, the user experience or the customer relationship. The lack of flexibility with models of this kind do not sit well with other m-commerce stakeholders such as banks, application developers, merchants and OTT players, which all want control over their own service destiny. It is a key reason why an increasing number of merchants are shunning operator controlled wallets and are seeking m-commerce solutions that bypass operators.
“This is where HCE come into play. HCE effectively severs the dependency of NFC payments on an SE embedded in an NFC device or SIM card, in preference for a virtual SE on remote servers in the cloud. This implementation supports a more open model for NFC deployments and makes service provisioning much easier for banks, issuers, developers and other third parties. This has the potential to open up the NFC market up to more innovation and competition, but at the expense of mobile operators.”