Mobile payments: BLE, NFC now HCE… OMG!

For at least the last 5 years, it’s been the year that mobile payments are going to take off – and this year is no different. As of late last year, what started as whispers from PayPal soon became a rallying call from the likes of Apple for a new technology called ‘Bluetooth Low Energy’ or BLE. It’s got everyone in retail excited all over again about mobile, even though it’s based on technology which is over a decade old. Be that as it may, BLE promises to revolutionise the way consumers and retailers interact and not just how they pay – but only if they have the latest smartphones and retailers have tablets as point-of-sale systems.

Despite the fact that BLE opens up a whole new world of exciting possibilities, it is also highly unlikely to have any sort of widespread use any time soon; instead, it is Near Field Communication (NFC) which is likely to lead the way in mobile payments. And there is one more technology to consider, too – HCE, or Host Card Emulation.

Based on something by now familiar to most of us – Bluetooth – the promise of BLE is interesting. And, as the name implies, it is low energy, so doesn’t drain the batteries.

While it delivers short-range communication, it’s not quite the same thing as NFC; where NFC is passive, BLE on a device ‘listens’ for a short-range transmitter and responds when it finds signals it understands.

What BLE does

For example: when a customer walks into a BLE-enabled retailer, their phone (via an app) knows where it is and starts a secure conversation with the store’s systems. By the time the customer is at the till, his picture is on the POS screen, the attendant knows who’s there and what payments methods are preloaded for him. He might walk out the store with his goods having never taken his wallet or phone out of his pocket.

The applications for BLE are exciting as it delivers a technologically impressive transaction which makes for great Twitter and Facebook comments, along with the pictures of the latte on Instagram.

It is the ultimate in convenience for customers, while it provides merchants with useful information about their customers.

Far from pie in the sky, BLE is being piloted successfully in the United States and elsewhere, with payments providers like PayPal fully integrating it into their systems. While it is the opportunity to disrupt the payments channel that excites the likes of PayPal and the banks, it’s the customer engagement aspect that is likely to get retailers most excited about BLE.

However, limited by the availability of customer devices in South Africa, BLE is only likely to see implementation as part of high-profile projects that give banks and merchants in specific settings the ability to show off what they are capable of. The key is the need for retailers to dramatically upgrade their POS (not just payment acceptance) infrastructure to really take advantage of BLE.

..and what NFC does

Which brings us back to NFC. Where BLE ‘listens’ for a transmitter, NFC doesn’t. It is passive. Where BLE works over a couple of metres, NFC works over centimetres.

Where BLE requires the latest smartphone, NFC is available in many handsets already.

The key advantage is that NFC payments made from a mobile phone uses the same hardware at the point-of-sale as payments made with contactless cards.

The contactless conundrum

But why is that an advantage if there are no retailers accepting contactless cards today?

The South African payments industry has toyed with contactless for a long time, but as with any large-scale consumer technology, it is a game of ‘which comes first’; the cards, or the pay points that accept them.

In fact, many South Africans hold contactless cards (as the banks are issuing them) but probably haven’t even noticed. Meanwhile, contactless payments are becoming familiar: new public transport systems being rolled out use NFC, including Durban’s Muvo (muvo.co.za) and Cape Town’s MyCiti (myciti.org.za).

As the technology creeps into the market, there will no longer be a need for specialised cards, as NFC becomes a standard in bank issued cards and on smartphones. With the public increasingly familiar with tap ‘n go, pressure will be applied upwards to retailers and then the acquiring banks to roll out contactless terminals.

NFC will likely build on this momentum, whereas BLE is dependent on a whole new infrastructure and ecosystem that doesn’t exist today.

Have some HCE

So what does HCE have to do with all of this and why do we need another three-letter acronym? Recently endorsed by the card associations (Visa and Mastercard), HCE, or Host Card Emulation, effectively opens up the issuance of contactless cards using secure NFC technology to anyone.

Instead of requiring secure data to be stored on a SIM card to facilitate NFC, the phone simply uses tokenisation and speaks directly to the card issuer to provide the secure channel between it and the merchant.

It’s great news for everyone except the mobile network operators, which until now were an integral part of making NFC work (and in many cases are blamed for its poor adoption). The investment in contactless infrastructure is now more easily justified by retailers, as they can issue closed-loop payments tokens via their own mobile apps that can be used on their existing contactless readers at their POS.

Combining NFC, BLE and HCE, omni-channel payments and a truly engaging customer experience is becoming a real possibility. The scene is set for some great disruption of the status quo and opportunities abound for the innovators.

Now, if only more customers actually had NFC or BLE-capable phones…

2017-10-16T16:37:45+00:00June 1st, 2014|Categories: News|Tags: |