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Which Mobile Payment Technology is the Best Fit for Banks?

In an interview, Randy Vanderhoof, executive director of the Smart Card Alliance, handicaps the three versions of near-field communication mobile payment technology and their pros and cons for banks.

Bank Technology News  |  June, 2011

The plethora of new mobile payment initiatives – the most recent being the mobile wallet project announced by Google, Citi, MasterCard, First Data and Sprint – can be confusing for banks. What mobile payment technologies make the most sense for a financial institution to offer? In a recent interview with Randy Vanderhoof, executive director of the Smart Card Alliance, he handicapped the three versions of near-field communication mobile payment technology that standards bodies have approved. [Near-field communication is a short-range wireless connectivity technology that enables short-range communication between electronic devices, and it’s the mechanism most companies are choosing to pursue mobile payments.] The differences between the three versions hinge on who controls the security of the mobile payments by controlling the “secure element” that stores cardholder credentials and account data and communicates with the apps.

“Banks have got to support whatever options are coming to the market,” Vanderhoof says. “They have to certify that the secure element meets their specifications and test and approve it.”

Scenario 1: Card data is stored on a secure element in the phone. This gives control to the mobile handset manufacturers. “If the secure element is embedded in the phone, then the handset itself becomes the main access point for the security,” Vanderhoof notes. “Even the mobile operator has to get the cooperation of the handset manufacturers to enable those apps to work through that secure element. If your strategy is to go to market with a secure element embedded in the phone, you’ve got to wait for all those models to make it to the stores and you have to test each and every one before you can allow the application to reside on the phone. It's going to be a longer, slower process. The advantage is the NFC is built into the phone, so it will cost less than it would to an add on a microSD slot option.” Handset manufacturers are fighting to have the secure element embedded in the phone, he says.

This is the approach chosen by Google, Citi, MasterCard and First Data; data is stored on a secure element in the Sprint Nexus S 4G phone. Why would these players cede control to Sprint? “I'm not sure they'd want to choose that,” Vanderhoof says. “In selecting their partners, they wanted a mobile operator involved and AT&T and Verizon were already involved in the ISIS project; Sprint is the next biggest player available to partner with. To get Sprint in, they’ve got to go in a direction that’s compatible with Sprint, which is the embedded secure element.” However, Vanderhoof points out that Google has expressed the wish to make its mobile wallet an open platform, and to invite other brands, issuers, mobile operators, and handset companies to participate.”

The Google project has got star power, Vanderhoof says, “which is helpful because we need something that will get people’s attention and get people to believe in it. They’ve aligned some well-known players like Mastercard, First Data and Citi. The fact that they have merchants already lined up for their program is really smart because leaving the merchants out of the discussion is problematic. You don’t have a payment solution unless you have merchants ready to accept it.”
Scenario 2: Information is stored in a secure element in a portable SIM chip that plugs into the SIM slot in most phones. “The mobile operator submits its secure element SIM to the brands, which test and approve it so it can go into any number of phones; it's not limited to any make or model," Vanderhoof explains. "So this could support faster deployment of multiple models of phones. Mobile operators want to use NFC in the secure element SIM because they control that real estate and therefore they can control what banks are going to reside on that and probably extract some favorable terms either in terms of fees or service charges to have the app on the phone. They’re deciding which of their models and customers will get the app, which means the bank takes a back seat to the operator in that exchange with the consumer.”

Scenario 3: Card data (and in some cases an NFC radio) is stored in a microSD card. “The advantage here is that the microSD chip contains both the NFC chip and the secure element, so it can retrofit into older phones that don’t have any NFC capability built in,” Vanderhoof says. “If you’re looking at trying to get the most mobile devices to the market the quickest, then the advantage would be to use the microSD card as the delivery system of both NFC and the payment app. You could plug that into any phone that has a microSD slot.