A lot of industry discussion is currently centered on Google’s announcement that Android KitKat 4.4 supports host card emulation (HCE). Some are taking the excitement around HCE as an indication that mobile network operators (MNO) are less intrinsic to the ecosystem and that trusted service management (TSM) and secure element management (SEM) technologies will not be needed in the coming years as everything will be cloud based. While it is undeniable that service providers (SP) have experienced a slight power shift in their favor and now have more delivery options, that does not mean that MNOs have no role to play. It is my belief that a portion of the market will settle on the hybrid SE/cloud model requiring MNOs to stay in the game and continue their investment in TSM and SEM technologies. Let me explain why.
The SIM SE still has a Role to Play
Both TSM and SEM technologies enable MNOs to manage SIM-based secure elements (SE) and I believe that SE-based solutions will continue to play a role. In order to meet the current and future demands of the marketplace, MNOs should ensure that they have a robust, scalable and flexible SE management solution in place. These should be able to take advantage of the new breed of SIM/cloud hybrid solutions that I believe will become prevalent in some sections of the market.
MNOs have an opportunity to become Root TSMs (Secure Element Managers) and support cloud/SIM hybrid solutions on the same platform. They can also capitalize on the recognized, proven authentication offered by the SIM; a level of authentication required by some secure service providers.
Additionally, as the issuer now manages the payment application and the most challenging certification requirements, there is not the same requirement for larger and more expensive SE SIMs to be rolled out and managed. Minimal memory requirements in the SIM and no need for memory size management or regular SIM swaps alleviate much of the burden on the MNO. This reduces the cost of market entry, a saving that can enable them to make their proposition to SPs more attractive.
Dominant MNOs (or consortia of MNOs) have the potential to act as the major market facilitator for the NFC ecosystem, offering not only Root TSM (SEM) but also SP TSM and potentially cloud management services. Many large MNOs are trusted brands with the strength to manage such a role and implementing a platform to support multiple technologies will give them the tools to do so.
So, What Does it all Mean for MNOs?
HCE will create additional choice for some issuers for lower value applications, such as access control, loyalty and in some cases, low value payments. I believe, however, that it will not become the ubiquitous solution for all NFC implementations, especially not the high value payments market. A more likely scenario is that the ecosystem will migrate from a totally SE focused position in the short to medium term, to a mix of pure cloud (HCE) solutions and SE/cloud hybrid solutions in the medium to long term.
Cloud has a range of benefits and it ultimately enables both the issuer and the MNO to operate in their areas of strength and it reduces material cost, management overhead and delivers expansion from existing roles. The important thing here is that MNOs should be prepared and should not cease activity now to avoid falling behind disruptive players entering the market. This will ensure the best return on investment in both the short and long term.
It’s about Choice
Creating different opportunities and solutions in the marketplace will create choice and the ability for businesses to easily and effectively deploy NFC services to their customers in a manner that supports their commercial objectives, technical capabilities and security requirements.
Bell ID offers a complete range of solutions for the mobile market. We support the ‘standard’ TSM model with our technology solutions for SP and Root TSM (SEM), we support cloud hybrid solutions which could be with SIM or embedded SE and we support pure cloud (using HCE) which will now be enabled on hundreds of millions of devices in the coming years.
Interested to learn more about mobile services in the cloud? Check out our short video or view our mobile solutions.