Host Card Emulation for Banks

5 questions banks should ask before they move to Host Card Emulation (HCE)

In Host Card Emulation by Salim Dhanani

The decision to implement mobile payments at your bank is a big one—any time you integrate new software it has the potential to be complex and costly. Fortunately, by now, a lot of the risk has been removed: there’s no longer uncertainty as to the best tool for mobile payments. In the last year, Host Card Emulation (HCE) has emerged as the clear industry leader. But making the move to HCE still comes with its own set of decisions.

Here are the five essential questions you need to ask yourself before (and while) you make the move to HCE:

Question 1: What will drive your customers to use your mobile payment product?
Most of the questions we’ll address below are only relevant up until the moment you create a road map for your product, but this is a question you should never stop asking.

Like your customers and their needs, the answer will continually evolve and your product should evolve along with those answers. Your HCE program is meaningless unless people are using it, so what are the particular drivers in your specific market? Keeping a continual pulse on what is important to your client is key.  Whatever it is, you need to be on the forefront and grow your product accordingly.

Question 2: How can you drive value so that your wallet becomes indispensable?
Any of these banks can digitize their payment offering, but your customer typically only has one phone, with limited homescreen space. Assuming your customer has cards with two or maybe more banks or credit unions, what value will you add that ensures yours is the one that gets used? Ultimately you need to ensure your card is the most important one in their wallet.

That might mean loyalty rewards, dynamic offers, or capturing data to create a delightfully customized experience. These metrics not only drive use, but also pull in the right partners to make your HCE product a success. Will you partner with a national supermarket to integrate loyalty rewards? Will you offer bonus airmiles for mobile use? Will you create alliances that give cardholders special discounts when they tap? You know your customer best—determine what will make your product indispensable.

Question 3: Will you create an independent wallet or integrate payments with your ebanking tools?
By now, most banks have an existing mobile platform. As you determine your next step for HCE, decide if your payment tool will live within or independently of that platform.

There are merits to both approaches, and it’s essential to know the parameters from day 1 because it’s difficult and costly to go back once you’ve stepped forward with a decision.

Banks want to create an experience and have invested heavily in a fantastic mobile banking experience. Sometimes that app experience is even better than the web experience and they know their users will favour it every time. In those cases, it might makes sense to simply add an SDK to an existing environment to enable payments.

Also, space is limited on a homescreen—and you want yours front and centre. Rather than convincing customers to make space for two branded apps—your banking tool and your payment tool—many banks would rather consolidate if it means hanging on to valuable real estate.

On the flip side, some favour the simplicity and utility of a wallet that serves as just that. Customers may not need or want to see their balance each time they load a payment product. This route gives you the freedom to incorporate additional features (chances are you don’t want to integrate an API for a loyalty program into your banking app).

Danske Bank chose this route. They created a separate mobile wallet designed to appeal to a broader market beyond just their existing clientele—you don’t need to be a member of the bank to use the app.

Question 4: Do you deploy it in-house or choose a vendor hosted model?
Once you’ve chosen an approach for your user experience, there’s yet another big decision to make about the infrastructure behind it. How will you deploy it?

Banks have historically liked to keep things in-house—and it’s true that nothing offers more control or security. But while it ensures maximum control, it’s often less efficient and less cost effective. In the race to market, a custom solution is always the slowest.

As someone with an eye on the history of mobile payments, you know the industry has followed more turns and twists than the windiest of roads. Technologies change. Offerings change. Nothing is the same as it was a year ago. A vendor hosted model can mitigate the risk of investing in an approach that may be obsolete in a year or two.

For those committed to hands-on management, starting with a vendor hosted model might be the way to test an approach before investing in bringing it in-house.

What about the best of both worlds?  Read more on Carta’s Token Processing Appliance (TPA).

Security, Time to Market, Cost and FlexibilityQuestion 5: What are you willing to sacrifice for security?
Every bank has a different system and approach to security, and your payment network has a baseline you must adhere to. From there, the question is “What is secure enough?”

This is actually a question of user experience. How many barriers do you add to your user’s transaction experience for the sake of security? For example will you require a PIN for all transactions? Or is there a threshold for small purchases at which users can simply tap and pay without the extra steps of authentication? There are layers of convenience that can increase user uptake which may mean reduced security. You need to determine your appetite for risk versus adoption.

When choosing a path for your HCE roll-out, your answers will be shaped by four variables: security, time to market, cost, and flexibility for the future. Knowing your bank’s non-negotiables on these priorities will inform your answers and ultimately shape your finished product.