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Ask an Expert

Thom Janssen

Managing Consultant

How do you see HCE impacting the adoption of NFC payments?

HCE is accelerating the adoption of NFC payments. Banks and other parties aiming for a mobile payment solution are looking at HCE as an alternative means to solve a lot of challenging ecosystem complexities that exist with traditional secure element (SE)-based approaches. Right now, we are seeing the first HCE-based mobile payment initiatives shifting into commercial launch phases. This demonstrates that more mobile payment initiatives are receiving the necessary investment to go to market, which means that consumers will be offered a wider range of mobile payment products. As such, we believe that HCE is a great stimulus for the NFC ecosystem as a whole. We also believe that SE-based initiatives will benefit as more customers get used to the tap-and-pay experience.


What have been the most significant barriers to quicker NFC adoption?

Previously, the lack of support in many payment terminals for contactless transactions has been a significant barrier to NFC adoption. However, contactless acceptance infrastructure is now undergoing considerable growth, which is accelerating the adoption of NFC payments.


On the issuing side, in many cases, it has taken the parties required for SE-based mobile payments too long to figure out the terms under which they would work together, including commercial agreement, fee structure, user interface, etc. This has slowed down the development of mobile payment initiatives and has limited the availability of mobile payment solutions to end users. It has been difficult for service providers, such as banks, to find the right model that would enable them to reach as many customers as possible. Often, the service providers are dissatisfied when they can support customers from a single mobile operator only and therefore have to interact with multiple parties to reach all of their customers. This has made the development and commercial model more complex. Meanwhile, these barriers have meant that many customers have not yet been able to experience tap and pay.


What barriers are there that might slow HCE adoption?

We see one barrier that may well prove to be temporary. To date, there is limited harmonization of the security mechanisms to deploy for HCE-based mobile payments and of the certification to check such mechanisms. This is a factor that slows down some deployments a bit. However, we have begun to see initiatives for harmonization by the payment networks, which is why we believe this will most likely be a temporary situation.


An additional barrier that banks are facing with HCE is the impact on their existing IT systems. Novel security mechanisms typically include some form of tokenization or limited-use keys. Such limited-use keys must be available for checking during the authorization of a transaction. This means that where the issuance of an SE-based mobile payment card would only impact a bank’s card issuance processes, now with HCE there is likely to be impact on a bank’s transaction authorization processes as well. This is a significant factor that banks will have to address.


A bigger concern, though, would surely be the potential occurrence of a major security breach. If that were to happen, it might slow down the adoption. That said, we do see a lot of developments to mitigate security risks. Beyond the range of software-based security mechanisms that are currently being implemented, a bigger role will have to be played by fraud detection mechanisms, such as anomaly detection, in the banks’ transaction monitoring systems. We can expect some catch-up games between hackers and the security managers of mobile payment applications, such as the ones we’ve seen in the development of many other mobile applications that rely on software-based security.


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