Tuesday, December 23, 2014

A Watershed Moment for the Payments Industry


Did you see the news? If you blinked, you might have missed it but its importance has ramifications throughout the payments industry.

Last Friday, Royal Bank of Canada (RBC) became the first North American bank to launch a pure Cloud Based Payments (CBP) solution utilizing Host Card Emulation (HCE) technology. Kudos to RBC! Read their release here.

An important aspect of the announcement is that the Canadian debit organization Interac was included with it’s Flash for Cloud Based Payments. Interac’s Flash seems to have beaten all other payments networks and their specifications to the punch by bringing a working solution to the market.

From our perspective, this marks the beginning of an anticipatory shift by financial institutions away from analog payments into digital. The shift will accelerate over the next several years as many financial institutions look for more effective ways to engage customers and distribute products to an ever more mobile and demanding consumer base. Juniper Research estimates mobile retail purchases to eclipse $700B annually by 2017. This transformation will not only impact the way banks engage with customers, but will drive what kinds of financial products and services are developed and how they are offered to customers throughout an ever evolving environment.

We’ve heard these predictions before, why now?

The payments industry ecosystem is at an inflection point. The meteoric rate at which innovation is happening foretells of much needed change and the necessity for more adaptive business models.

Enter CBP and HCE.

The concept of CBP and HCE did not exist until SimplyTapp introduced them in August 2012.  CBP is the framework for storing payment credentials in a virtual Secure Element (SE) in the cloud while HCE provides the path of getting those credentials from the cardholder’s mobile phone to the retailer’s Point of Sale (POS). Groundbreaking as that was, it only represented the first of several enablers that were needed before widespread adoption could take place within the industry. The next step that was needed occurred nearly one year later with the inclusion of HCE inside Android 4.4 (KitKat) in September 2013 which provided developers with a proven, widely distributed platform to build wallets and mobile banking applications. Earlier this year at Mobile World Congress in Barcelona, Visa and MasterCard gave their much needed support and endorsement for CBP and HCE providing immediate legitimacy and freeing up issuing banks for innovation. Only one critical requirement remained in order to drive adoption of this technology. A forward-looking bank needed to take the initiative and roll-out a live implementation with real data and real transactions. RBC’s announcement last week fulfilled that requirement.


With each of these key enablers firmly in place, the stage is set for mobile payment proliferation. Each day, consumers are expecting to do more with their mobile devices than ever before. The emergence of groundbreaking core technology and services, including the launch of Apple Pay, reveals a new and largely unmet demand for point-of-sale mobile purchases. More and more consumers will come to rely upon customer-centric financial institutions to help them conduct secure and convenient mobile purchases.

Being the first at anything is never easy. It requires vision, a smart assessment of the path ahead and a resolve to overcome any obstacles discovered along the way. For those who are willing, the rewards greatly outweigh the risks. We applaud RBC’s and Interac’s industry leadership and focus on the customer. And we join them in ushering a new year full of innovation.

Agree? Disagree? Let us know what you think.