Why NFC mobile payments aren’t dead yet
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.