A technology called "host card emulation" made a big splash when it became part of the Android operating system in late 2013, but 2014 marked the year in which the tech became a foundation for future mobile wallet development.
HCE's key benefit is its ability to enable contactless payments from phones without requiring access to the device's secure element, a hardware component that is typically guarded by carriers. In practice, this allowed apps such as Google Wallet, which had been blocked by many carriers, to finally enable payments from any modern Android phone.
By February, Visa and MasterCard threw their support behind HCE. Visa already had several issuers testing the technology, and MasterCard was in the process of developing an HCE specification with Capital One and Banco Sabadell. Over the course of the year, companies such as Royal Bank of Canada and Tim Hortons announced their own HCE deployments.
But even with such big companies supporting HCE, actual implementations remain scattershot. In 2015, HCE will quickly gain momentum, said Doug Yeager, CEO of SimplyTapp, the tech company that wrote the code for HCE in the Android operating system in 2012 before Google officially enabled it.
"On a mobile device, what HCE did was provide anyone a way to communicate with any terminals out there today," Yeager said. "Prior to that, there was a requirement to have an association with a mobile network operator, but that all went away with HCE's arrival."
The debut of Apple Pay, which relies on the iPhone's secure element, should energize competitors in the Android ecosystem. This, in turn, will lead to more use of HCE to quickly deploy mobile wallets, Yeager said.
"What we really want to get out of HCE next year is commercial deployments," he said. "Let's start seeing some apps pop up in [Google's] Play Store and have it built-in for customers to do live transactions at terminals and across multiple verticals."
In particular, issuing banks can benefit from HCE because the technology enables them to add a payment capability to their existing mobile banking apps, said Aite analyst Thad Peterson in a recent report on HCE.
If banks do this, third-party payment apps could lose much of their appeal. "The bank can control all aspects of the issuer-side transaction flow," Peterson said.
To promote more HCE adoption, SimplyTapp opened its development platform in June to facilitate HCE integration for card issuers and app developers.
Any future updates to HCE would revolve around specifications established through the card networks, access control companies or transit authorities planning to use it, Yeager said.
"It will be interesting to see how Google, Softcard and the carriers jockey for position to have a say in how these profiles are established through the card networks," particularly for open-loop deployments, said Tim Sloane, director of emerging technologies advisory services for Boston-based Mercator Advisory Group.
HCE profiles need to include a mechanism for identification that would standardize the way in which different devices can be used, Sloane said. "If not, we end up in a fight [within the payments industry] over who owns the identity."