How this technology made banks super excited about contactless payments

Its called HCE - Host Card Emulation. Google brought the alternate card emulation method in Android 4.4 KitKat. HCE does not require a dedicated secure element. It acts as a software oriented environment where card data is directly routed to host computing unit by bypassing the secure element.

The first implementation of HCE was released by SimplyTapp Inc. when they lauched their NFC mobile wallet called Tapp.

Some industry observers have even started believing that the advent of HCE will help financial institutions worldwide make a significant dent in a crowded mobile wallet market.

Banks are looking forward to utilizing HCE in contactless payments. The following examples show how some banks have already gone ahead and either launched HCE commercially or currently implementing it in pilot projects or endorsing future implementations:

Banks that have made commercial launch:

Bankinter (Spain)

The spanish bank launched Mobile Virtual Card (MVC) technology as an application in order to leverage HCE. MVC was developed in collaboration with Spain-based payments technology firm Seglan. MVC enables one to create one-time-use NFC-based credit or debit cards for use with mobile phones. It uses HCE to create a software version of EMV smart cards. It makes use of secure virtualization techniques and 2 issue authentication.

MVC is a technology allowing a multiplicity of different implementations, said Jacobo Díaz, Director of Innovation at Bankinter. We have dedicated an entire year to reach the adequate security level for EMV on line payments, based on the results of the ‘risk assessment’ process performed by Fraunhofer AISEC laboratory.

Some prime characteristics of MVC service are:

  • User can download the MVC application into his Smartphone.
  • User can securely register cards via either web, phone banking or at the banking branch.
  • One or many of the existing debit or credit cards can be used for EMV mobile payments at merchant locations.
  • It does not require any changes to the existing acceptance infrastructure (POS terminals) for NFC proximity payments.
  • It does not require having network connectivity at the time of payment.
  • It enables the bank to autonomously define its own business model and brand image in mobile payment media, without entering into an agreement with third parties.
  • The registered cards can be updated with the help of a remote management system 100% integrated into the Mobile Virtual Card client-server system of the financial institution.

The following video shows how Bankinter’s wallet application can create a virtual EMV card for single payment transaction. The service is also shown in use with a contactless POS terminal.

PrivatBank (Ukraine)

The Ukraine based bank launched a service which allows customers to make NFC payments using HCE. The solution is available in form of an app called Liqpay. The app is available to those having NFC smartphone running Android 4.4 KitKat. Liqpay enables you to register any Visa or MasterCard. Funds can be transferred at POS terminals by simply a tap of your smartphone.

PrivatBank expects HCE to become the future standard of making mobile payments. The bank believes that HCE enables financial institutions to host payment account in a secure, virtual cloud. This avoids the need of using space on SIM cards from mobile network operators. So the dependency on the MNOs can be avoided.

'We decided to use HCE because it is independent and a very easy solution,' said Alexander Vityaz, the bank's deputy chairman and head of its ecommerce business. The app provides a host of features like:

  • SMS passwords for high safety
  • Interactive assistant to make payments
  • Alerts on invoices
  • Contactless payment for goods and services using QR-code on physical terminal and on internet

Banks doing pilot projects:

Sherbank (Russia)

The Russian bank invested in U.S. based Sequent Software to launch a mobile wallet later this year. The mobile wallet will feature HCE to enable NFC-based payments. The bank wants to leverage on Sequent’s ability to support digital issuance for cloud and secure element.

The pilot is also using Sequent software and it is with the secure element embedded in the handset so not in the SIM card, and we are partnering with Samsung and HTC on that. This is in Moscow on a small number of devices right now, but it will go to several. said Mircea Mihaescu, managing director of Sberbank digital ventures.

The bank also wishes to enhance its current loyalty program in the future using the service.

Banco Sabadell (Spain)

The bank launched a technology pilot of HCE in collaboration with Toronto based company Carta Worldwide. The pilot will test EMV-based contactless payments at POS terminals.

'The most notable feature of this pilot is how easy it is for users to add their credit cards to their phone without having to manipulate any physical secure element or rely on third-party service providers,' said Albert Figueras, Banco Sabadell's director of credit cards and consumer finance.

Carta’s HCE payment system also supports NFC-based High Value Transactions (HVT) which are authenticated via mobile PIN entry.

Capital One (USA)

The bank worked in collaboration with MasterCard on a pilot HCE project. The main aim behind the pilot program was to develop specifications for HCE based payments.

For Capital One, the pilot was about exploring new ways to commercially deploy an NFC-based offering and securely store credentials. We’ve enjoyed a longstanding partnership with MasterCard, and we continue to work together to deliver innovative solutions for our bank customers, said Jack Forestell, Executive Vice President, Digital, Capital One.

The specifications developed include testing of services like loyalty programs, building access and transit passes to be delivered in use with HCE based secure element.

Banks willing to endorse future HCE projects:

The focus of Visa and MasterCard on bringing up more HCE based payment projects has made the following banks target future projects:

  • U.S. Bank
  • National Australia Bank
  • Royal Bank of Canada
  • Westpac
  • Australia and New Zealand Banking Group Limited
  • U.S. Bancorp

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