Host Card Emulation (HCE) is an on-device technology that allows a phone to perform card emulation on an NFC-enabled device. The device does not have to rely on access to a secure element.
Prior to the usage of HCE, Mobile payment credentials were stored on the mobile device inside the secure element. With HCE, the secure element can be present outside the mobile device. This in turn reduces both complexities and costs. The technology can help a mobile wallet application turn into a virtual smart card. In turn, this means direct communication between merchants and banks without any intermediaries, i.e. mobile network operators.
With sensitive data stored in cloud databases, there is also a very high security standard set. In order to prevent unauthorized access HCE relies on multiple areas:
- It eliminates dependence on mobile operators. Payment providers can therefore create NFC-enabled applications without seeking permission from a mobile operator.
- It enables bank to directly interact with the card without network operators
- HCE simplifies the overall payment process, as payment credentials are stored in the cloud and not in the secure element.
- It is highly scalable
- It reduces capex
- It eliminates the need for network connectivity at the time of payments
With bigwigs such as Google, Visa and Mastercard gunning for it, HCE has gained ground. However, being a young technology, several challenges still exist, including:
Security– Although a number of security parameters are in place, it is potentially less secure than NFC using a traditional SE primarily because of the possibility of device rooting via a malware application. If the device is rooted, anyone who finds the phone can access all information.
High tap time– The time taken from when the phone is placed on the terminal until the transaction is completed, is found to be relatively higher.
Certification– HCE requires an NFC controller and certification. In case the handset does not have NFC controller, a card-based transaction is not possible via this technology. HCE wallets also required to be certified by payment companies before payments are made at contactless POS machines.
Clearly, despite these challenges, HCE is here to stay. It has clearly laid the groundwork for the future of mobile payments as well as other NFC services including loyalty programs.