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Real World Cloud NFC Mobile Payments

2013 December 3

I went on a shopping spree yesterday using my Nexus 7 Android tablet to pay via NFC.

I wanted to test out KitKat’s new NFC capabilities provided by SimplyTapp, which is in all official Android builds going forward. I also wanted to compare making payments using Google Wallet and an experimental app.

Google Wallet with McDonald's mobile payment receiptsAs I mentioned in my previous post, Android 4.4 KitKat no longer requires a hardware secure element. This is called host-based card emulation (HCE). Importantly, this means wireless carriers no longer control provisioning cards for NFC payments.

Mobile carriers are now just one of many types of organizations that can provision virtual payment cards onto NFC-enabled devices. Plus this means no more annoying trips to your carrier’s retail store to get an “enhanced” SIM card to enable mobile payments.

Now banks, retailers, loyalty card companies, card networks – and anyone else who wants to – can embed payment functionality into their applications.

Of course, this means they have to provide a lot of back-end services and integrations with payment processors. But it’s now possible and it works.

I went shopping to try it out.

First I had to setup my Nexus 7 tablet. Many other Android devices support NFC. Here’s the full list. Android 4.4 KitKat is still rolling out to some users. I got my upgrade opportunity on Wednesday, just in time to play with it over Thanksgiving weekend.

Google Wallet mobile payment setup using bank account instead of credit or debit cardNext I installed Google Wallet. Google Wallet lets me manually enter both card and bank account information.

Behind the scenes, when you pay with Google Wallet, it actually uses a “Virtual MasterCard” from The Bancorp Bank then the bank turns around and bills the payment method you entered.

Think of it as a proxy of sorts – or even a benevolent “man-in-the-middle”. Collecting millions of bank accounts can be a profitable business by itself with mobile payments as the trojan horse.

With Google Wallet, I can also order a Google Wallet card with a traditional magstripe that lets me pay using my wallet funds anywhere. I find the card of little use because I don’t plan to keep money in my Google Wallet. Rather, I plan to only use it as a passthrough.

Lastly, it’s worth noting that you can use Google Wallet like PayPal to send money to someone else with Google Wallet (aka a P2P payment). If Google Wallet catches on, this might be useful and another step towards World Domination for Google. Right now, it’s a curiosity with little opportunity for use – like NFC payments.

Later I also installed my experimental wallet application that also can use NFC to make payments. A bank embedding this technology into their mobile banking app can skip Google Wallet’s card entry step.

Banks already know your card information and can simply provision your card from the cloud once you enable mobile payments and setup your PIN.

Merchants could also do this for white-labeled credit cards and loyalty cards while offering the option for customers to enter any card into their app. When you think about it, this is exactly what we’ve been doing with and other online retailers since the 1990s.

Merchants could even consider transferring existing payment tenders from online accounts to the retailer mobile shopping app with the customer’s permission.

Next I had to find a merchant with a) NFC readers, and b) NFC readers that worked. I went to Walgreen’s first. They had an item I wanted to buy for my son for Christmas. (I won’t mention it by name, in case he reads this blog). Since I wanted to test out both apps, I also picked up some gum.

I nervously wandered around the store looking like a shoplifter waiting for a slow period at the one cashier. Unfortunately a nearby retirement home had literally dropped off a busload of senior citizens to do their shopping.

Finally, when the line was empty,  I went to make my payment. I set Google Wallet as the NFC default.

I told the cashier I wanted to make two transactions. She just looked at me for a second before scanning the expensive item. I held the ‘x’ in “Nexus” on the back of the tablet over the contactless reader. (This is where the NFC antenna is located).

Nothing happened.

I tried again – not even a beep. The cashier just looked at me.

“Do you know if this thing works?” I asked.

“I’ve never even seen anyone try to use it,” She said. “Do you have a card you can use?”

I pulled out my credit card and finished the purchase. Then we both realized I still had the gum and she started another transaction to pay for the it.

“The Photo Department is also available for checkout, ” I heard announced over the loudspeaker. I looked up and there was a line of seniors waiting behind me.

Next, I drove to Staples where I bought my Nexus 7. I noticed they had contactless readers when I bought it. The checkout was empty when I walked in. I grabbed a large bag of candy and walked up to the cashier.

“I want to pay using this thing,” I said, wiggling the Nexus and mostly hoping he didn’t think I had stolen it.

“It doesn’t work,” the cashier said as he rang me up. “I’ve seen people try it and it never works. I think it doesn’t work with our register.”

I held the tablet over the reader anyway – and it beeped. A red light also flashed. But nothing happened on the checkout display.

The card reader should say that my card was scanned and eventually say “Accepted,” just like with a card swipe. Nothing happened. I tried it again. Nothing. I pulled out my card again and paid with using the magstripe.

“Try GameStop or Home Depot. I think their readers work,” He said.

I went out to the car and started eating the bag of candy. I decided to try Lowe’s first because it was closer. My store didn’t have contactless readers.

I got back in the car and ate more of the candy. I headed toward GameStop but saw a McDonald’s on the way. I pulled in. McDonald’s is one of the largest contactless-enabled merchants.

Fortunately, McDonald’s was empty. Again I made sure Google Wallet was set as the default. I ordered a coffee and put my tablet over the reader to pay. It beeped, the light flashed and a few seconds later the checkout display listed my card and the receipt printed.

“I want to try it again with another card,” I said to the cashier. He didn’t seem to mind.

I set the experimental app as the default and ordered another coffee.

I held the tablet over the reader. It beeped and flashed and instantly started printing the receipt and opened the cash drawer.

I now had two large coffees to counteract the sugar crash of the candy from Staples.





Why NFC mobile payments aren’t dead yet

2013 November 22
Android NFC Mobile Payments using HCE

Android 4.4 KitKat puts NFC on life support

NFC fatigue seems like it’s almost become rigor mortis in my conversations with issuers and merchants over the last few years. But, just maybe, that’s changing.

We’ve been stuck in a deadlock where carriers tightly control handset payments hardware but won’t accept the necessary risk to extend enough credit to consumers to make a mobile wallet useful. In fairness, this likely means acquiring or partnering with one or more banks and creating a number of complicated business relationships. But in the end, it’s been a big-fat roadblock that’s nearly killed mobile payments and NFC in particular.

Furthermore, until now, NFC secure element design has required physical hardware  connections in a design holdover from pre-smartphone days. Just look at the long-awaited Isis launch instructions. You have to physically go into your carrier’s store to upgrade your SIM card to communicate with the NFC chip in your phone. Most of the Isis software is actually running on that SIM card and there’s no good way to get it from the carrier and onto your existing SIM card. Plus there may be hardware changes to the Java ME operating environment on that card that need upgrading. Sure, going forward, carriers can load the phones with the updated SIM cards. But there’s still not a good path for the next upgrade – and any others after that.

We solved this problems with smartphones and the Internet a long time ago.

Apps, App Stores and an open mobile OS solved this problem for other third-party software. Now Android 4.4 KitKat solves this problem for NFC mobile payments using Host Card Emulation (HCE). KitKat’s HCE implementation was provided to Android by SimplyTapp.

Simplistically HCE lets mobile wallets work just like ecommerce sites and online banking have always worked: you log in using credentials stored in the cloud.

It’s stupid how we’ve been trying to do NFC, when you really think of it. You don’t go to the phone company to get access to your bank account.

With HCE and cloud-based payments, everything isn’t solved. However, organizations now are free to innovate and find solutions (and business relationships) that work for them and consumers. Furthermore while the big change here is with the Android’s mechanism to access NFC, the technology around this can evolve to support Bluetooth or other technologies to interact with POS terminals (including other phones).

I firmly believe mobile payments won’t take off until we fundamentally transform the shopping experience for consumers. Android has freed us up to innovate. Now we have to figure out what that means for our own businesses.

Merchants are now free to work with issuers, processors, and card associations to tie loyalty programs and shopping tools to payment tenders. Issuers can provide merchants with payment technology to build into their store apps. Card associations can transfer risk to merchants and speed the adoption of EMV in the US by encouraging mobile payments and treating certain contactless transactions as EMV-compliant and pricing them accordingly.

So, before giving up on NFC and mobile payments. It’s time to dust off your enthusiasm and take another look at mobile payments innovation.

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