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HCE and SIM Secure Element : It ’ s not black and white

The recent inclusion of Host Card Emulation (HCE) into Android 4.4 KitKat opens up the possibility of performing mobile NFC payments without using a SIM Secure Element (SIM SE). HCE may potentially remove a lot of the complexity associated with SIM SE-based NFC payments and reduce the need for mobile network operator (MNO) involvement. This is, however, only part of the story. This paper shows that whilst HCE does indeed simplify some aspects of the NFC ecosystem (most notably the application provisioning process), it requires a new approach to security. For now, issuers will need to either build new capabilities in house or work with specialist suppliers. They will also need to work with the payment networks to obtain certification waivers until the rules for HCE are fully developed. By contrast, the processes around SIM SE are mature but with a more complex ecosystem, which the MNOs are actively working to simplify. There are also some usability considerations with HCE that need to be addressed, as the use of the technology matures. Whether or not these impact a particular issuer will depend on the types of transaction that the issuer needs to support. The SIM SE and HCE approaches to NFC payments should not be viewed as mutually exclusive. There is a lot of overlap in the capabilities required to support each of them. Whilst this paper contrasts payments using SIM SE to payments using HCE, the two approaches will not stay this polarised as the markets develop. Combining the approaches may allow solutions to be optimised for different markets whilst reusing existing infrastructure that has already been developed. The incorporation of HCE into the smart phone mainstream has tapped into significant latent demand for mobile contactless transactions. This will stimulate a new interest in MNO NFC services in the mass-market. For issuing banks contemplating which approach to NFC payments is right for them, this paper shows that there are a number of factors to consider. The biggest single factor is likely to be the local market. In markets with a mature SIM SE NFC ecosystem, taking a SIM SE approach should be quicker and lower risk than HCE. In other markets, a deeper analysis will be needed as both solutions develop.