Mobile Payments. 2015: The year of HCE?

mobilepaymentstoday.com

A little over a year ago, Mobile Payments Today published an article with the headline "HCE should jump-start mobile payments for banks."

Since then, however, just a handful of financial institutions in North America have integrated HCE technology into their Android-based mobile banking apps.

While Android Pay's arrival will give banks the opportunity to integrate the system into their mobile banking apps, financial institutions run the risk of losing some brand awareness with customers.

Martin Cox, global head of sales for Bell ID, recently wrote about the FI's dilemma in a contributed article for Mobile Payments Today.

"Android Pay offers banks more options, however, so they may well look for other routes to market in addition to the schemes," Cox wrote.

So, what is a bank to do in this evolving mobile-payments world?

Financial institutions might learn a lesson from the Royal Bank of Canada's current playbook.

A blueprint

RBC was the first financial institution in the North America to add HCE support to its mobile banking app, but it already had a history with cloud-based mobile payments.

RBC in 2013 introduced RBC Secure Cloud, which was the first cloud-based mobile payments product in Canada. In January 2014, RBC Wallet debuted, based on the Secure Cloud technology.

RBC Wallet was first available on Samsung Galaxy S3 and S4 devices and gave bank customers the ability to choose between paying at the point of sale with either an RBC Interac debit or Visa credit card. Interac is Canada's national debit network.

 RBC Head of Innovation Jeremy Bornstein said that the beauty of Secure Cloud and the reason why it was created is that it eliminates the need to provision mobile payment accounts over the air, which in some instances can take as long as 60 minutes.

"We thought our customers would never wait 60 minutes to do this," Bornstein said.

With Secure Cloud, payments were already integrated into the mobile banking app when customers downloaded it, Bornstein said.

"When you signed in the first time, you didn't have to provision your checking account or your savings account," he said. "You downloaded the app and instantly had access to your credit and debit cards in a cloud-based model."

RBC currently is transitioning from Secure Cloud to HCE. It announced the addition of HCE to the RBC mobile app in December with employee pilots. RBC expects a commercial release sometime this summer, according to Bornstein.

"[HCE has] really liberated a lot of the restrictions that have limited the use of mobile payments and we're expecting it to explode," Bornstein said. "Going forward, we don't see how we would go to a secure element model unless it was universally, ubiquitously available."

Other options

While RBC has its own standalone mobile banking apps with a payments function, it still plays in different areas.

As of March 17, Apple Pay was available through RBC Bank for its Canadian clients who reside and bank in the U.S.

RBC also will integrate some Android Pay capabilities into the RBC Wallet as part of Google's forthcoming mobile operating system upgrade in Android M. The bank will add features that identify and authenticate users in Android apps via a smartphone's fingerprint sensor, similar to Apple's Touch ID feature.

Bornstein declined to directly comment on how Apple Pay and Android Pay might affect its standalone mobile app, but said there is the risk and fear that RBC "gets commoditized."

One ongoing argument that persists throughout the industry is that banks fail to innovate in the face of competition from fintech companies that ride the existing rails of the current payments system. And you could even argue that those products aren't innovative enough.

"There really hasn't been an innovation in the payments space in North America in 30 years," Andrew Luca, a partner in retail banking and payments for PricewaterhouseCoopers, told Mobile Payments Today in an interview. "Even if you look at the new mobile solutions that are coming to the market today, they're a repackaging of your credit, debit, or prepaid card."

Luca believes that HCE can help banks compete with the upstarts in the payments industry, but it likely won't mean much for consumers at the end of the day.

"Walk down the street in Manhattan and ask them if they care about HCE," Luca said. "If you don't get the payment guy, chances they're going to look at you like, what's your problem? The consumer largely doesn't care what that instrument is.

"I want walk into a store and have [a mobile wallet] work and I don't care how it works. I just want it to work and if doesn't work, I walk out."

Banks, more than any other provider, do have an opportunity to make a personal connection with a consumer and that's where they might care who is behind the mobile wallet of their choice.

While RBC's Bornstein worries about commoditization, the bank and others do have the opportunity to keep consumers within their walls for mobile payments.

"Yes, the experience matters very much to us because we think we can deliver a very compelling experience," Bornstein said. "We can deliver more value to our clients by having a closer relationship with us. By using our app, we can deliver things that our competitors and third parties never could such as rewards points, financing, [or a] host of different activities."

Going forward

Industry observers expect more U.S.-based banks to integrate HCE into their Android mobile banking apps throughout the remainder of 2015.

Earlier this year, Mozido Founder and Chairman of Global Strategic Initiatives Michael Liberty told Mobile Payments Today in an interview that he expects more HCE deployments in the U.S. and worldwide. Mozido in February invested $2.5 million in SimplyTapp in a Series B financing round, and that should contribute to HCE expansion.

Inside Secure, a provider of embedded security products for mobile and connected devices, told Mobile Payments Today that it also expects a boom in HCE deployments this year.

"We are definitely going to see some significant entries to the HCE payment space in the U.S. from some of the largest issuers in 2015," Inside Secure President Andrew McLennan told Mobile Payments Today in an email. "Europe is extremely vibrant; lots of things should break cover towards the end of the year. Asia is also experiencing a sudden acceleration of development and we expect to see quite a few announcements there as well."

Inside currently has several ongoing HCE-related projects that involve either securing an existing HCE product (developed by banks, payment schemes or solution providers) or providing its HCE mobile implementation, according to McLennan.

For all the talk about 2015 being the year of Apple Pay, it just might turn out to be the year of HCE.