Russia's Sberbank, the third largest bank in Europe, will use Host Card Emulation technology for its mobile payments initiatives as a way to eliminate players and cut the costs of deployment.
Host Card Emulation, or HCE, allows banks to support contactless mobile payments without accessing the phone's secure element, which is typically guarded by the carriers.
"With the secure element or card credentials in the cloud, a bank can launch a mobile wallet and bypass the need to pay the telco or handset manufacturer," says Mircea Mihaescu, managing director of Sberbank Digital Ventures.
Sberbank is using Sequent, a Silicon Valley-based technology provider, to power its HCE mobile wallet. The bank also worked with Sequent on its mobile wallet pilot using Near Field Communication technology last year.
"While the technology is brand new and the standards have just been announced, [HCE] has the potential to shake up the industry," Mihaescu says.
He says Sberbank doesn't partner with telcos because "their growth is our loss." Telcos are trying to get into mobile payments through other methods, such as direct carrier billing, so any business they get actually takes consumers away from using bank cards, he says.
The Sberbank mobile wallet will launch in Russia at an unspecified date. The bank has more than 60 million active card accounts in the market.
The first iteration of the mobile wallet will house only Sberbank cards, says Mihaescu, but in the future the wallet will accommodate other bank and merchant cards.
"[Unlike] the U.S., the availability of contactless point of sale terminals is quite large in the tens of thousands in Russia," says Mihaescu. About half of all merchants in Russia have electronic point of sale terminals; of those who have electronic terminals, half are Sberbank customers, he says. And of those Sberbank customers, about 30% have terminals that accept contactless payments, he says.
Smartphones are proliferating significantly in Russia, where the average mobile phone owner buys a new handset each year, Mihaescu says. Sberbank expects most of its customers to have smartphones soon.
But Sberbank may also face challenges in Russia. The company works with Visa and MasterCard, which may be pushed out of Russia if they do not comply with a new law that would cost them hundreds of millions of dollars. The situation stems from the card networks' compliance with sanctions imposed on some Russian parties following the crisis in Ukraine.
"Of course if Visa and MasterCard are getting out of the country it would have an impact [on Sberbank]," says Mihaescu. "But we continue with the assumption that we'll continue to work with them."
Sequent was founded four years ago as a "neutral administrator over secure storage and digital issuance," says Robb Duffield, CEO of Sequent.
The company allows any authorized mobile app to use card data stored in a phone's secure element. The Sequent platform also allows these cards to be used in authorized mobile wallets.
Sequent works with Sprint and several unidentified banking partners in the U.S. In Canada, the company works with Rogers Communications and the Canadian Imperial Bank of Commerce (CIBC).