Ever since Google announced support for Host Card Emulation (HCE) earlier this year on the Android OS, banks, merchants and other mobile payment aficionados have been all over it, trying to grasp its significance. Countless blogs, papers and presentations have been written about it, but, as they say, a picture is worth a thousand words. This HCE infographic was developed to tell the HCE mobile payments story in a nutshell. What it is, why it matters and what’s in it for banks, merchants and consumers like you and me.
Host Card Emulation is a new technology that gained celebrity status when Google announced support for it in the KitKat version of the Android OS. “HCE” describes the on-device technology that lets a phone to perform “card emulation” on a Near Field Communication (NFC)-enabled device without relying on access to a secure element. This means that apps in an NFC phone sporting KitKat can access payment, coupon, loyalty and other credentials on a host server and use them at merchants who also have NFC devices (in this case Point of Sale systems). All of this without having to rely on secure elements, usually controlled by a mobile operator or OS maker.
This became serious business when Visa and MasterCard endorsed Host Card Emulation and announced work on HCE mobile payment specifications this year as well. Suddenly, mobile payments at physical merchants got a huge push. With HCE mobile payment and cloud issuance, millions of NFC mobile phones can be enabled for payments at merchants with a simple app update–a real game changer.
This matters a whole lot because 94% of transactions still happen in the physical world. Despite all the hype about mobile commerce, still only 1% or so of transactions happen in mobile devices says eMarketer. Even total e-commerce, around from the early days of the Internet, represents barely 6% of total retail commerce.
And HCE is set to become almost a global standard for mobile payments as its penetration in new smart phones could reach a whopping 85% of new smart phones shipped. Numbers released by the research firm IDC for Q2 2014 show that 84.7% of all smart phones shipped globally were running Android OS. That is up considerably from the from 80% market share they had at the end of 2013.
And chances are that a lot of these new smart phones will also have Near Field Communication (NFC) chip technology allowing for proximity payments. IHS research estimated that in 2013 275 million NFC-enabled phones were shipped, the great majority of them running Android OS. And by 2018 that number is expected to ballon to 1.2 Billion, the end-result being that two in three phones shipped are expected to support NFC according by 2018. And it’s not only consumers who will have NFC-enabled devices. It’s the majority of merchants in developed countries too. By 2017, 86% of the Point of Sale devices in North America and 78% in Europe will support NFC according to Berg Insight.
And all this will drive adoption of mobile wallets by consumers on a large scale. In just 4 years, by 2018, we can expect 1.5 billion mobile wallets to be in use by consumers worldwide according to Juniper Research. That’s over 20% of the global population.
Even players who so far have been unimpressed about mobile payment initiatives will take note. Banks will be in the driver’s seat of mobile payments again. They will be free to deploy mobile payments systems anywhere regardless of who owns the secure element on the phone. Across multiple mobile operator networks, geographies and handset models.
Merchants and banks will be able to add HCE mobile payment functionality to their existing mobile apps. They’ll be able to maintain their customer relationships and brand equity instead of being inside someone else’s app or “wallet.” And they’ll be able to manage the consumer shopping experience from beginning to end.
Ultimately, it’s consumers who will benefit the most. They will have the best user experience. And they will be able to use the apps they love to make payments at their preferred merchants anywhere in the physical environment.