NFC HCE and Payment Trends

On April 17th, David Marcus, President at PayPal said, “I’ve been looking at three technologies that might truly change the retail experience as we know it.”

One of the technologies David is looking at is NFC HCE (Host Card Emulation). It is an alternative way of using SE (Secure Element) to implement security mechanisms for NFC technology. In my previous blog, I explained why Google has chosen HCE. David Marcus said, “I’m moving from being a massive skeptic of NFC, to being cautiously optimistic on NFC HCE take-up in very specific shopping use cases.”

He envisions two scenarios that would popularize NFC. One is the credit card EMV movement, which would lead to more NFC-enabled terminals at points of sale, and the other is Visa embracing the HCE approach.

I understand David’s point coming from the payment industry leader he is. At the same time, I believe that NFC will take off regardless of payment trends. From my personal experience advocating NFC to business owners, the technology is received with excitement. Entrepreneurs are inspired by the possibilities presented through the integration of NFC tags and chips for enhancing and marketing their products and services. They also wonder why they haven’t heard about the technology sooner.

AT&T, T-Mobile and Verizon spent a huge amount of money on ISIS mobile payment implementation based on NFC, yet they are not promoting the technology proactively or effectively. Not many subscribers know about NFC or ISIS.  What is the missing link?



EMV and NFC Adoption

Are you a victim of the recent Target credit card breaches? Today, most US credit cards use a magnetic stripe to read and record account data and signatures for verification. This mechanism became vulnerable to fraud when technology emerged to enable the illicit reading, writing, and subsequent cloning of these magnetic stripes. Recent data breaches at Target and Neiman Marcus demonstrated these vulnerabilities.

EMV (Europay, Master card and Visa) standards were created to reduce counterfeit such as this. They have been specifying interoperability between EMV-compliant chip cards and card payment terminals throughout the world for over a decade. Banks in many countries adopted the technology and started to use chip cards. Chip cards have a microchip embedded in them. The majority of the implementations of EMV cards and terminals confirm the identity of the cardholder by requiring a PIN (Personal Identification Number).

In spring 2009, Canada Trust announced the adoption of EMV standards and explained what a chip card was in an article titled “Payment Card progress: what it means to your business”. The article stated that one of the new fraud prevention technologies that may have the most immediate impact on how merchants do business is the chip card. The chip card is a contactless card with a microchip and a radio antenna embedded inside. It can be simply waved in front of a secure, contactless reader for a secure way to pay.” These chip cards used by Canada Trust use RFID technology.

As the world is moving to a more secure way to implement credit card purchasing, one might wonder why the USA adoption of this technology is delayed, and what the impact of this delay is.

To me, two big potential impacts might be:

  • More credit fraud will happen in the US since the rest of the world is using more secured cards.
  • NFC mobile payments are a less attractive option for consumers since NFC technology might take a while to be adopted.

What is your thought about this?

See more information about EMV here.