A lot of analysts and media started prepping eulogies for the Near Field Communications (NFC) this year when Apple announced iOS 7. The company once again passed up NFC, while embracing Bluetooth LE for iBeacons, confirming that the new iPhones would not be featuring NFC. And so, NFC was dead, right?
Gartner predicted that mobile payment transaction values will hit $235.4 billion in 2013, a 44 percent increase over the previous year. But in the same study, Gartner reduced NFC’s transaction value by more than 40 percent throughout the forecast period. Gartner blamed the reduction on “disappointing adoption of NFC technology in all markets in 2012 and the fact that some high-profile services, such as Google Wallet and Isis, are struggling to gain traction.
But now, NFC has a lot developing around it that could breathe much needed life into the struggling technology. Isis Mobile Wallet—the joint mobile payment venture of AT&T, Verizon and T-Mobile—finally began its national rollout, and Jamba Juice even promised free smoothies to Isis users to celebrate. That initiative, relying on NFC-enabled devices, should be a shot in the arm for the technology.
The odd man out, Sprint, recently introduced an NFC program of its own called Pinsight Touch, which is designed to simplify the NFC authentication process.
But the most compelling bit of good news for NFC emerged from Google’s latest update to its Android operating system, KitKat. Google is trying to make it easier for developers to include NFC in their apps by by moving credentials off the secure element on mobile devices. The secure element is the part of the phone owned by the carrier, making them the gatekeepers, which explains why developers can have a hard time gaining access to the technology.
The official name is Host Card Emulation (HCE) and Google says it works for payments, loyalty programs, card access, transit passes, and other custom services. Additionally, Apps will have access to a Reader Mode, allowing them to act as readers for HCE cards and other NFC-based transactions. Android is using Application Identifiers (AIDs) for routing transactions to the proper applications while circumventing the secure element.
Jordan McKee, mobile marketing & commerce strategies analyst for Yankee Group, more succinctly explained it as the NFC chip tying into the application and the application tying into the cloud.
Working around something called the secure element will naturally raise concerns. McKee said it’s still a bit unknown how secure HCE will be, adding that cloud-based systems are definitely a more enticing target for fraudsters than credentials stuck inside a device’s secure element.
“The big question mark right now is how the card networks feel about this,” McKee said. “We’re going to have wait and see if they certify it or if they’re comfortable with card credentials being used in that manner.”
But HCE opens up a lot more functionality for NFC beyond mobile payments, such as rewards programs or transit ticketing, which might not require the same level of security that goes along with mobile payments. In turn, by enabling new functions and loosening restrictions for NFC, HCE can make developing for the contactless payment technology more inviting. As McKee pointed out, it’s been the carriers’ stronghold over the secure element that has slowed the full potential of NFC up to this point.
“We’re going to start to see developers embrace the technology a bit more which should help to bolster consumer interest and familiarity with NFC,” McKee said. “Hopefully we’ll see a bit of a renaissance happen where NFC moves out of niche status and starts to go more mainstream.”
Watching the NFC party shift away from the secure element, where access can be monetized, isn’t likely to make the carriers happy. In the case of Isis, the business model is centered around charging retailers with loyalty cards or financial institutions to rent space on the secure element, McKee said, adding that with the HCE approach that model kind of disappears.
“[Mobile operators] try to find a place in the value chain and they’re really clutching at straws when they do. All the sudden the opportunity kind of evaporates and they’re relegated again to a dumb pipe that’s just carrying data back and forth,” McKee said.
But that’s not necessarily the case for Sprint. Brian Smith, director of product for Pinsight Media, shared in a statement his excitement about HCE and being in Google’s corner for the NFC fight.
“[Sprint has] been meeting with Google on HCE, and we are excited to let Google do what they do best, which is prove out new technology. Sprint and Pinsight Media+ will continue to work aggressively with Google to support Google Wallet and other technologies they bring to the market,” Smith said.
Carriers may be able to sell better security as a benefit to their approved NFC applications, but McKee still sees HCE as a setback for their plans with the technology. For NFC, though, HCE could be a new lease on life.
“NFC’s problem really hasn’t been a technology issue as it has been a business issue and I think that’s the real problem that’s been faced in gaining user adoption,” McKee said. “So Host Card Emulation, in a perfect world, will help open up the ecosystem and create some new opportunities around that technology.”
