MasterCard, Visa sidestep Isis and wireless carriers with HCE support for mobile payments and NFC

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Both MasterCard and Visa endorsed a new mobile payments technology that could enable them to bypass Isis and other hardware-based mobile payments systems. The action could also boost Near Field Communications (NFC) technology for mobile payments.

The credit card giants both voiced support for what is called Host-Card Emulation, or HCE, something that is supported in Google's (NASDAQ:GOOG) latest version of Android, 4.4 or KitKat. HCE is an open architecture that enables payments and other NFC services--including loyalty programs, building access and transit passes--to be delivered without the use of a so-called "secure element."

HCE basically stores and transmits payment card information, such as the cardholder's name and the card number, via the cloud. That way, the information can be accessed and transferred securely by merchants and mobile apps that access the cloud.

Importantly, HCE bypasses the secure element embedded in the hardware of a phone. Carriers have long been the gatekeepers for who and what gets access to a phone's secure element and have typically charged fees for accessing it. Now, with HCE, phones can still conduct mobile payments via NFC--without a carrier's permission. BlackBerry (NASDAQ:BBRY) also supports HCE.

"We believe this is partly an effort by the card issuers (MasterCard, Visa) to circumvent the MNOs who could potentially charge fees for the secure element," Sterne Agee analyst Vijay Rakesh wrote in a research note. "On the other hand, liberalization of payments with HCE will drive NFC adoption."

MasterCard  said it worked with Capital One on the initial HCE pilot and with Banco Sabadell on a European pilot. The pilots will pave the way for additional deployments planned in 2014 with other financial institutions around the world, MasterCard said. Visa said that in addition to supporting clients who are hosting the Visa account data on secure elements in smartphones, it is extending its Visa Ready Program "to also support financial institutions and partners who want to securely deploy Visa accounts in the cloud."

Visa's head of digital solutions for developed markets, Sam Shrauger, told GigaOM that the new cloud-based format of its payWave service will let all developers embed point-of-sale payment options into their apps, allowing banks to turn their banking apps into mobile wallets. "For the first time there is an ecosystem that is wide open to anyone to start enabling contactless payments," he said.

The technology represents a direct alternative to the mobile payments venture Isis, which is backed by AT&T Mobility (NYSE:T), Verizon Wireless (NYSE:VZ) and T-Mobile US (NYSE:TMUS). Isis began rolling out its NFC-based payments service nationwide in November, and has said that its contactless payment stations are available at 1.3 million retail locations, including 24 of the top 100 U.S. merchants. Isis represents a flashpoint in the mobile payments market--the carriers that are supporting Isis are not supporting rival mobile payments technologies like Google Wallet.

For more:
- see this Visa release
- see this MasterCard release
- see this Re/code article
- see this GigaOM article
- see this FT article (sub. req.)

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