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Mobile payments smackdown: Did Google Wallet just outplay Isis?

The Host Card Emulation feature in Android KitKat for driving near-field communications mobile payments just got a big boost in the form of support from MasterCard and Visa, which could spell trouble for Isis.

HCE, which was introduced by Google with the Android KitKat update, could undermine the role of carriers in mobile payments since credit information is stored in the cloud instead of on a secure chip in phones that carriers typically control access to. The Google service was introduced in response to several major carriers blocking Google Wallet’s access to such secure chips, thereby limiting its reach at a time when the carriers’ own mobile payments solution, Isis, has also been trying to gain traction.

“The best strategy for Isis moving forward would be to embrace HCE and play along with other mobile wallet players in the market,” said Sai Casula, management consultant for Carlisle & Gallagher Consulting Group, Charlotte, NC. “We should see increased adoption of Google Wallet with this announcement.

“With HCE, Google has opened the flood gates for NFC Payments and created a level playing field for all mobile wallet providers — issuers, networks, retailers, etc.,” he said.  “It is an important development in the world of NFC and payments.

“HCE ‘democratizes’ NFC and introduces an optional degree of freedom from mobile network operators that want to control and regulate the NFC with SE in UICC.  This change has a potential for increased flurry of activities around mobile/digital payments in the banking, cards and payments in the near future.”

Spurring adoption
The card networks hope HCE will spur adoption of mobile payments.

While there is near universal agreement on the significant potential for mobile payments, adoption has proceeded slowly over the past couple of years. This is in part because numerous stakeholders have been jockeying to grab as big a piece of the pie as possible while blocking others potential growth.

As a result, the reach of mobile payments has been limited, with consumers and retailers seeing little reason to jump on board.

“Anybody who looks at the scale of the opportunity and the scale of our business would be a little frustrated [by the slow progress in mobile payments],” said James Anderson, group head and senior vice president of mobile and emerging payments at MasterCard, Purchase, NY.

“We want to be able to get more phones into hands with ability to pay so we can see that ignition point coming quicker and everybody can realize the benefits that we are seeing for the opportunity,” he said.

Pilot programs
Banks Capital One and Banco Sabadell have been piloting HCE.

Per Mr. Casula, Royal Bank of Canada is live with an HCE program and U.S. Bancorp is using HCE with MasterCard on Nexus 5 phones only.

Under the program developed by MasterCard and Visa, consumers with Android devices running the latest operating system and with an embedded NFC chip will be able to make contactless payments funded by their Visa or MasterCard cards at retail locations where contactless terminals are in place. Typically, this will be done through a mobile banking application provided by a user’s own bank.

When ready to make a payment, consumers will take out their phones, open their bank app, enter a PIN and tap their phone against the contactless terminal.

Banks and the credit card companies have the potential to be a important force in mobile payments as they already have relationships with many consumers and are trusted to handle sensitive financial information.

An open market
While banks are likely to play an important role in bringing HCE solutions to consumers, any Visa or MasterCard issuer could also build the service into their apps, such as retailers with co-branded credit cards. Wireless carriers could also potentially participate.

AT&T, Verizon Wireless and T-Mobile have been betting on driving adoption of Isis, the NFC-enabled mobile wallet they created in partnership. However, the service has failed to gain widespread use.

While HCE could boost Google Wallet, there are some pitfalls for the card networks.

For example, it also could open an opportunity for players such as Amazon, Facebook or Twitter to enter the market.

There are other challenges with HCE as well, including security.

However, HCE could also help Visa and MasterCard with their own branded digital wallets, and MasterPass.

“These wallets worked excellent in the eCommerce world but had real challenges implementing in the bricks-and-mortar space,” Mr. Casula said. “With HCE, the end customer can use and MasterPass in the bricks-and-mortar space.”

The transition to contactless
The need for contactless terminals could be one of the stumbling blocks for HCE, as not all retailers have invested in them yet.

There are signs that U.S. retailers may be ready to invest in contactless payments more broadly.

After Target suffered a massive data breach at the end of 2013, the retailer announced plans to speed up its transition to the chip-based payment standard called EMV, which offers enhanced security. Others retailers could follow suit, with many expected to simultaneously install the contactless readers needed for NFC-based mobile payments.

HCE also supports other NFC services such as loyalty programs, building access and transit passes.

Such programs are seen as essential for the success of a mobile payments solutions as there is a bigger opportunity to bring added value to consumers for such services as compared to actual process of paying via credit card,

“We were looking for other solutions that would enable us to grow the business quicker,” MasterCard’s Mr. Anderson said.

“We have the large luxury of a very large number of consumers and customers who have cards with our brand on them and we want them all to have the ability to pay with their mobile devices,” he said.

“HCE is an enabling technology on the device but delivering and supporting a method whereby that technology can be used for payments is just a good thing to grow the market.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York