NFC based payment: how will it develop relative to upcoming alternative approaches? Hong Kong | March 2014

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Agenda Alternative approaches to NFC-based payments Alternative to SE-based NFC implementation Impact and Outlook

QR/Bar codes: remotely-based Merchant’s physical shop Trigger redirects payment transaction to e-money transfer Internet Lifecycle management E-Money Service Authentication and payment transaction (e-money transfer) Internet

Bluetooth Low Energy: remotely-based Merchant’s physical shop Trigger redirects payment transaction to e-money transfer Internet Lifecycle management E-Money Service Authentication and payment transaction (e-money transfer) Internet

BLE: How does it work? User experience perspective The Beacon network at the store is aware that consumer is in the area and “checks him in” after he approves so. Proximity marketing when consumer passes nearby B&M store Consumer is checked in at the store As the consumer enters a micro-region at the store, he receives personalized deals or coupons Cashier submits payment from the POS by selecting customer from list of nearby checked-in customers Consumer approaches cash register to choose payment scheme and give verbal approval for payment Cashier verifies identity of consumer using visual inspection. Customer chooses payment scheme POS detects presence of customer nearby. List of customers nearby is re-sorted The POS is equiped with a beacon as well

BLE: Business opportunities Proximity marketing Micro Location-based notification Customized marketing Specific directions Indoor mapping “Contactless payments”

The principle underlying use for both technologies is different BLE versus NFC BLE and NFC are both short range wireless data transfer technologies, even though the range at which BLE operates is much longer. Tens of meters compared to a few centimeters for NFC Between both technologies there are minor differences in power consumption Whereas NFC is focused on one-to-one data exchange, BLE allows for multiple simultaneous connections Both BLE and NFC utilize AES-128 bit data encryption and pairing modes The principle underlying use for both technologies is different

“Traditional” NFC Handset Host CPU Secure Element Read / Write mode Scope Read / Write mode Peer 2 peer mode Card emulation mode Tag Handset Terminal

SE-based NFC: proximity-based SEI-TSM SP-TSM Merchant’s physical shop Lifecycle management NFC

Challenge for SE-based NFC Card Emulation: SEI ≠ SP High investments Complex network Immature business arrangements ... Low degree of standardisation High degree of collaboration needed Physical cards: SEI = SP NFC Card emulation: SEI ≠ SP Perso bureau Card vendor BPO Supply contract SP SP TSM SEI TSM BPO Supply contract Card vendor Supply contract SP SEI

Android KitKat’s HCE promises to change that

Host-based Card Emulation AID Routing Rule Default Host AID Y Secure Element Android device Host CPU Android OS Contactless smartcard reader Select AID “x” NFC Controller Secure Element NFC controller Registry Select AID “y”

HCE takes place in environment that is not secure: the host Android has in-built security mechanisms (e.g. sandboxing). These may be over-ruled in case the device is rooted. Android device Host CPU Android OS Device rooting Contactless smartcard reader Select AID “x” NFC Controller Secure Element

HCE & Cloud solutions. Device Authentication. Key Management. Date HCE & Cloud solutions. App 1 Device Authentication. Key Management. Tokenization. Token storage. PCI requirements. Host physical and logical requirements. App 2 Wallet

HCE accelerates the NFC ecosystem NFC Ecosystem is getting ready to scale up: Device support Consumers are used to access services from mobile devices Infrastructure is growing SE access discussions are however delaying development, while many services do not require top-level security from day one With HCE SPs have the freedom to choose for the HW security or not

HCE impact on NFC ecosystem Explanation SPs Are given an additional degree of freedom SEI (& SEI TSM) The role of the SEI is removed (or much lighter) for HCE services TSM The role of (SP-)TSMs may change from the personalization of an applet to the personalization of an HCE service. App development Enhancing the security of HCE applications Existing wallet and payment apps to be updated

Example 1: HCE for open-loop high value payments Pro Convenience Reduced costs Less players + no SE issuers Con Decreased security High potential losses Certification unclear (yet) HCE as an NFC driver takes into account the value of HCE services helping to streamline the use of NFC. Since HCE services are ‘easier’ to deploy than current SE based NFC implementations, then it is assumed that wider spread would mean NFC is driven positively (+). On the other hand, end-users using HCE services would not distinguish between SE and HCE based NFC services. Therefore a security breach encountered in an HCE service could drive perception of NFC being unsafe. Thus, having a negative driver effect (-). SP’s compromise point-of-view

Example 2: HCE for low value payments, closed loop systems, transit, access control Pro Convenience Reduced costs Less players + no SE issuers Con Decreased security Low potential losses Compatibility SP’s compromise point-of-view

Summary Alternatives approaches are available, all bring their own challenges. Cash and Physical cards are still the most commonly deployed

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