Wirecard's Mobile Plan Gives Banks Power Over Carriers

One of Europe's newest digital wallet initiatives is relying on technology that sidesteps carriers, another blow to an industry that's suffered greatly in its attempts to gain share of the mobile payments market.

Wirecard, a Munich-based mobile technology company, has released "boon," an Android app that uses Host Card Emulation (HCE), a technology that enables contactless Near Field Communication-based mobile payments without requiring access to a phone's secure element, which is typically controlled by carriers. HCE is the technology that allowed Google Wallet, a precursor to Android Pay, to operate on the AT&T, Verizon and T-Mobile wireless networks in the U.S.

"HCE erases several problems," said Georg von Waldenfels, executive vice president of consumer solutions for Wirecard AG. "We have built boon on the hope of HCE technology, which can provide a state of the art user experience combined with an easy and secure sign up process."

Carriers have been stubborn about supporting new payments technology, particularly in markets where the carriers have their own competing offering. Part of the carriers' argument is rooted in security; the U.S. carriers argued that HCE-based wallets are less secure than those that can tap into the phone's hardware. Wirecard hopes to convince carriers to be more flexible on technology.

"Many mobile network operators remain focused on SIM cards," von Waldenfels said, adding Wirecard hoped to convince mobile network operators to support HCE in the future. "We have had good conversations with many MNOs."

Apple Pay, which runs only on Apple devices, uses the secure element. Most recent Android wallets opt for the flexibility of HCE.

Wirecard did not address questions about a future iOS app. Wirecard's Android app is available via the Google Play store in Germany, the Netherlands, Austria and Belgium, with other markets scheduled to follow.

"The users are supposed to be in the middle of the technology, so it should be easy to use. The user needs a really good feeling to actually use the product and it's easier to use HCE than a SIM card as the secure element," said von Waldenfels.

Wirecard's boon app will not initially charge a fee for usage, though it will charge for loading its prepaid account and payments will carry the normal card fees.

Coupled with the failures of carrier-led mobile payments initiatives such as Softcard in the U.S. and Weve in Europe, mobile providers have had difficulty building mobile payment ventures outside of emerging markets.

Beyond HCE, another differentiating factor for boon will be tying to other Wirecard technology. In 2016, boon will add loyalty solutions and a wide range of personal finance services like micro credits and person-to-person payments, von Waldenfels said.

"Other companies, such as the MNOs, or [Softcard] in the U.S., were early adopters and invested a fortune in mobile payments and acceptance. But it didn't have the user adoption because it didn't have stickiness…we see value in the range of products that we can add to consumers, such as all of the products that we offer through Wirecard," he said.

Wirecard will face adoption challenges from the disparate penetration of contactless acceptance in European countries. The U.S. and Holland, for example, are stronger in contactless acceptance than Germany and Spain, according to Wirecard.

But Europe may be a fertile market for HCE. Android has a market share of up to 80%, concentrated in continental Europe, and MasterCard has a mandate that all point of sale terminals in Europe should be contactless by 2020, said Zil Bareisis, a senior analyst at Celent."And the 'Pays' — Apple Pay, Android Pay, etc. — are not available yet in Europe, except for Apple Pay in the U.K.," Bareisis said. "All of this creates a positive environment for an HCE-based wallet."