Host Card Emulation Takes Another Step with Key Sequent Software Issuance Solution

Sequent Software Inc. on Tuesday launched a solution that will let card issuers take advantage of so-called host card emulation, a protocol that allows issuers to provision digital cards for mobile payments while bypassing the phone-based secure element. With the new solution, issuers will also be able to embed their digital cards in mobile apps created by other developers.

Sequent says it has signed a “global” financial institution to use the new product, but it does not yet have permission to name the bank.

The Mountain View, Calif.-based company, founded in 2010, thus becomes one of the first vendors to enable a form of mobile payments that many observers say is reviving the prospects for near-field communication (NFC), a technology that lets consumers pay by waving or tapping their phones near or on a contactless reader. With host card emulation, NFC relies on cloud storage of card credentials, rather than storage in the secure element, a chip usually controlled by the mobile carrier. In bypassing the secure element, issuers avoid carriers’ fees for access to the phone, a cost many experts say was hindering NFC development. Last fall, host card emulation, or HCE for short, became a practical reality with Google Inc.’s release of its latest mobile operating system, Android 4.4, which supports the protocol.

Now Sequent executives say that with the company’s new HCE-based digital issuance software, issuers will be able to provision cardholder credentials from a cloud configuration in compliance with new specifications set out by Visa Inc. and EMVCo, a standards body controlled by Visa, MasterCard Inc., and other card networks. The specifications include rules for masking card credentials with one-time tokens that would be useless to thieves if intercepted.

“We’re trying to solve for ubiquity and scale,” Robb Duffield, chief executive at Sequent, tells Digital Transactions News. Scalability improved earlier this month, he adds, when Visa approved the company’s digital-issuance platform, which enables provisioning to secure elements as well as host card emulation. “We want to interoperate with any form factor, cloud being the most relevant today,” Duffield says. “Our Visa approval is very important. This is still a payments industry. You still have to get the approval of Visa, MasterCard, American Express, and EMVCo.”

MasterCard is working on its own set of HCE specs and expects to release them by the end of June.

A key element of the new solution, Sequent executives say, is the ability for issuers to extend digital cards into partners’ apps, a move that would allow cardholders to have instant payment capability. “Some issuers will build back-end systems themselves, but they haven’t cracked the nut yet of how to let the credentials work in any trusted app,” notes David Brudnicki, Sequent’s chief technology officer. “That’s where we come in. We’ve cracked the nut.”

Indeed, some observers see this process reversing the course followed so far in mobile payments, in which app developers like Google and Isis court banks and merchants. Now, these observers say, issuers will have the capability to court app developers.

“We will see issuers working with third parties and retailers to allow consumers to take their payment credential or a token in to third-party and retailer apps for payment,” predicts Cherian Abraham, global consulting practice analyst at Experian Decision Analytics, in an email message. “Issuers will struggle a little with this, but consumers want the ability to pay for things wherever and whenever, and trying to lock them down to a specific app, even if it is the bank’s own mobile-banking app, seems counterproductive.”

But others caution that, for all HCE’s promise, consumers and merchants first must show interest in mobile payments, something that hasn’t been overly evident so far. “Before HCE can take off, merchants and consumers need to become more interested and engaged in making point-of-sale payments with their phones at places other than Starbucks,” says Rick Oglesby, a senior analyst at Double Diamond Payments Research.