The Apple Pay monopoly debate part 1: context is everything

John Gruber did everyone a favor outlining some of the stakes at play in the remarkably glib, “Remarks by Executive Vice-President Vestager on the Statement of Objections sent to Apple over practices regarding Apple Pay.” The objections are annoyingly vague and refuse to specify how Apple Pay stifled competition and innovation:

(The) Digital Markets Act will…require companies designated as gatekeepers to ensure effective interoperability with hardware and software features they use themselves in their ecosystems. This includes access to NFC for mobile payments.

Today’s case addresses a conduct by Apple that has been ongoing since Apple Pay was first rolled out in 2015 <sic, 2014 actually>. This conduct may have distorted competition on the mobile wallets market in Europe. It prevented emergence of new and innovative competition that could have challenged Apple.

Mark Gurman and Jillian Deutsch at Bloomberg also did everybody a favor unmasking PayPal as one of the instigators behind the EU Commission Apple Pay investigation. Yes, that PayPal…the financial service that snuffs out user accounts whose politics they don’t like, or worse just seizes their money.

Both pieces miss important context surrounding the debate however…and with this issue context is all, especially how Apple Pay is playing out in other global markets. Most of what follows I’ve covered in earlier posts but hope to pull the various issues together in one post. Yet again, we kickoff with an updated Apple Pay diagram.

‘Open’ NFC, gatekeepers and secure element wars
Europe has been calling Apple Pay unfair since the very beginning, with many EU member banks holding out as long as they could. German banks only joined Apple Pay in December 2018 when Vestager was already actively seeking Apple Pay complaints. Less than a year later Germany passed a bill to force Apple to ‘open’ their NFC chip. Australian banks tried the same in 2017.

The so called Apple ‘NFC chip’ is not a chip at all but a hardware/software sandwich. The Apple Pay ecosystem described in iOS Security is a collection of tightly integrated polished pieces: Secure Element, Secure Enclave, NFC Controller, Wallet and Apple Pay Servers, all wrapped into a slick, easy to use UI with a final security wall of ‘secure intent’, a double-click side button hot-wired to the Secure Element. This approach has been so successful that people divide mobile payments history into pre-Apple Pay and post-Apple Pay eras.

NFC has been on Android far longer than iPhone, and ‘open NFC’ at that, but is far less successful capturing mobile payment users than Apple Pay. This is because Android device manufactures made the classic mistake of taking the ‘let’s take awesome NFC technology and figure out how we’re going to market it’ approach. Jennifer Bailey’s Apple Pay team choose the hyper focused Steve Jobs approach of starting with the customer experience and building backwards while asking: “what incredible benefits can we give the customer, where can we take the customer?” That choice made all the difference.

Apple Pay has a very simple rule: any card that loads a Java Card applet into their embedded secure element (eSE) has to reside in Wallet app. The maximum number depends on how many Java Card applets it can hold at any one time, the previous limit was 12, the iOS 15 Wallet limit is 16 cards. Developers have two ways to access iPhone NFC: 1) Core NFC framework for NFC operations that don’t use the secure element, 2) Secure Element pass certificates for NFC operations that need secure element transactions (payments, keys, ID, passes). Any developer who wants to run applets in the eSE has to apply for a PassKit NFC/Secure Element Pass Certificate. This is covered by NDA but a company called PassKit (not Apple) gives us an idea what Apple’s Secure Element Pass guidelines are:

Apple care a great deal about the user experience. Before granting NFC certificate access they will ensure that you have the necessary hardware, software and capabilities to develop or deploy an ecosystem that is going to deliver an experience consistent with their guidelines.

The end to end user experience, the whole reason behind the success of Apple Pay. But this gatekeeping is what riles banks and financial service providers who want to load their applets into the secure element without the Apple Pay gatekeeping, without the Apple Pay ecosystem and without the Apple Pay commission. They want to do their own transactions with their own app for free. This is what the EU Commission means when Vestager says: “Evidence on our file indicates that some developers did not go ahead with their plans as they were not able to to (sic) reach iPhone users.” It should read: when they were not able to reach iPhone users for free. Either the developer didn’t apply for a Secure Element Pass, didn’t pass the certification process, balked at Apple’s certification conditions, or couldn’t agree on Apple Pay commission rates.

Secure element gatekeeping is not new, it is an essential part of the secure element system:

A Secure Element (SE) is a microprocessor chip which can store sensitive data and run secure apps such as payment. It acts as a vault, protecting what’s inside the SE (applications and data) from malware attacks that are typical in the host (i.e. the device operating system). Secure Elements handle all sorts of applications that are vital to our modern digital lives…

Mobile Payments
Here, the Secure Element securely stores card/cardholder data and manages the reading of encrypted data. During a payment transaction it acts like a contactless payment card using industry standard technology to help authorize a transaction. The Secure Element could either be embedded in the phone or embedded in your SIM card.

Lifecycle management
It’s crucial that SE-embedded devices are secure throughout their lifecycle. That’s why Secure Elements need to have an end-to-end security strategy. It’s no use developing a robust security solution for a device which becomes obsolete after a period of use. This is why Secured Elements can be updated continuously to counter new threats.

What is a secure element?

Few people, especially a PayPal or EU Commission vice president, discuss the crucial secure element lifecycle management aspect. It’s not convenient for them to say the secure element ‘gatekeeper’ is responsible for keeping it secure. Far more convenient for their arguments to omit this, portray gatekeeping as unnecessary and gatekeepers as evil. In the end however, Apple has to maintain secure element updates from the various licensed secure element providers (EMV,FeliCa Networks, MIFARE, and so on) if secure payments are going to work at all This is what people who say, ‘it’s my device, we should be able to use NFC how we want,’ do not understand.

People also forget that nothing is free, you get what you pay for. With Apple Pay as gatekeeper, users get simplicity, innovation and feature updates. Simplicity: users get NFC they can use out of the box without Android-like NFC complexity such as secure element positions and obscure express mode settings.

Innovation: Apple Pay has features like Global NFC. iPhone and Apple Watch are the only smart devices that come with FeliCa built in as standard to use in Hong Kong or Japan, while Android limits functionality by market region. It’s astounding that Android, not even Google Pixel Android, has matched this basic functionality yet. We’re seeing more innovation as Ultra Wide Band (UWB) extends Wallet functionality to include ‘Touchless’ car keys and eventually, UWB enhanced automatic card selection as you approach the reader; more helpful than you might think.

Feature updates that, ‘just work’: the recent seamless Apple Cash switch from Discover to VISA, PBOC 2.0 flavored China T-Union transit cards, MIFARE Student ID, or the addition of in-app purchases and dual mode NFC for Japanese VISA card users when VISA JP finally buried the hatchet with Apple.

And the lesson? Apple Pay changed everything in the Japanese payments market, a catalyst that opened up competition and payment choices, for everybody. All boats rose together. It’s one of the most vibrant payment markets that Apple Pay operates in.

Japan is key to understanding what’s really going on in the Apple Pay monopoly debate. Japan was the first market with an established mobile payment platform in place, long before mobile EMV contactless payments took off in Europe. iPhone also has a much larger marketshare in Japan than it does in Europe. It’s a shame people pass up the opportunity to learn from the successes and failures here.

So what’s the EU Committee vision for ‘open NFC’? I think it’s a rehash of the secure element wars when carriers locked mobile payment services to SIM contracts. In 2013 Google incorporated SimplyTapp HCE (Host Card Emulation ‘secure element in the cloud’) technology as a NFC ‘workaround’ to ‘free’ NFC from the evil clutches of mobile carriers. Sound familiar? Android NFC has never been right since.

How little things change, swap ‘evil mobile carriers’ for ‘evil Apple’ and you have the same self serving ‘open’ vs ‘closed’ NFC chip nonsense that people are debating today. FeliCa Dude, the ultimate industry insider who has experienced it all, said it best: ‘It’s all eSE or nothing now.’

And yet we now have Île-de-France Mobilités (IDFM) turning back the clock, circumventing the eSE on NFC equipped Android devices and going all in with HCE for IDFM’s Smart Navigo service for Android. To me this says all you need to know what European priorities are regarding the ‘open NFC’ model: eliminate eSE gatekeepers by forcing the less secure network dependent HCE as a required option. Good luck with that. From a transit perspective, based on Mobile Suica user experiences, I don’t think HCE Smart Navigo will be a smooth ride.

The EU Committee ‘open NFC’ vision might look ideal…to Apple Pay competitors. Regular users however, will have to deal with the ugly reality of multiple NFC apps, multiple NFC secure element modes and clashing updates that cancel out NFC services. Apple Silicon eSE space is limited to 16 cards. If that sounds like a lot now, wait until you have credit cards, transit cards, home, car and office keys and ID installed along with ‘open’ NFC apps wanting their own eSE space too. Services will be squeezed out forcing the user to intervene. If the EU Committee thinks this environment fosters competition and innovation while growing mobile payment use, dream on.

Japanese tech journalist Junya Suzuki has covered NFC mobile payment developments in Europe, America and Japan for over 2 decades. He doesn’t think the EU is playing an even hand here, in his opinion Samsung and Huawei would never face the scrutiny that Apple now faces. In typical European cultural fashion, EU motives pay lip service to fair open markets while playing an underhanded game of chess to make Apple do what EU banking interests want Apple to do. In other words, a double standard.

What does Apple need to do?
I’ve always said that Apple needs to make the Secure Element Pass application process as transparent as possible. Keeping the blackbox NDA process as it is now makes Apple Pay a target, increasingly difficult to defend the status quo. Secure Element access on the level of Core NFC is a long shot, the very definition of a secure element means there has to be a developer certification process similar to EMVCo, FeliCa Networks, MIFARE, Calypso Networks Association, etc., that protects the privacy and business interests of all parties. But it would be great if there is a middle way where Apple can securely open things up for iPhone as a digital wallet, and iPhone as a payment terminal. We’ll see if Apple has anything to say about the subject at WWDC22.


Part 2: the gatekeeper difference

Recommended reading: Ruimin Yang’s wonderful overview, “Apple Pay monopoly, are we really comparing ‘Apples’ with ‘Apples?” examines the Apple Pay system architecture, how it compares to other digital wallet platforms, (Google Pay, Samsung Pay) and what ‘open vs closed’ means in the ‘Apple Pay is a monopoly’ debate.

How much does Smart Navigo HCE suck?

It’s interesting parsing app reviews that say ‘this app sucks’. How does it suck and why? As I’ve said before, the overwhelming negative App Store reviews for Suica App are not about the app but about poor network connectivity kills a connectivity critical service app. The poor connectivity is due to a variety of factors: carrier auto-connect and free WiFi or overloaded mobile connections messing with Mobile Suica recharge and other online functions. People assume the WiFi and cellular icons at the top of the phone screen indicate a healthy internet connection, which they decidedly do not.

Most users see Suica App as the software that controls everything Mobile Suica AND iPhone NFC hardware. It does not of course but people dump all blame on Suica App anyway. Fortunately most of what Mobile Suica does is done without an internet connection. The only time it needs one is recharge time with a credit card in Apple Pay Wallet app or Suica App.

Yet all that complaining over online Mobile Suica app services however, tells us something important about mobile internet connections in station areas, on trains and subways: they suck. Despite ubiquitous 4G LTE~5G cellular and WiFi coverage, reliable internet is notoriously fickle in those famously busy Japanese train stations. This is the real reason behind all those ‘this app sucks’ Suica App reviews. Interestingly enough, this is the same performance gripe with the mobile myki system in Victoria. Like Mobile Suica this became a problem because mobile internet connections weren’t up to the job of delivering reliable, trouble free ‘anytime, anywhere’ recharge/top-up, which people tend to do in transit.

Which brings us to Smart Navigo, the Île-de-France Mobilités (IDFM) Paris region transit card for mobile that is going wide on Android smartphones this year. IDFM has spent a lot of time and expense working with Calypso Networks Association (CNA), the transaction tech used for Navigo, to implement the less secure network dependent Calypso HCE ‘cloud’ secure element approach as the default mobile transit tech for Android devices in 2022.

It is very unusual that IDFM chose HCE as their go to mobile strategy on Android when the more secure hardware embedded secure element (eSE) is standard on all smartphone NFC devices, and does the job without internet connections. HCE is very different from eSE in that both NFC smartphone and the reader need a connection to talk with a server. HCE was also conceived for leisurely supermarket checkout, not the challenging transit enviroment. How does Calypso HCE compare to the network-less eSE experience? CNA says:

For security reasons, transactions using the personalization key or the load key are not possible through the NFC interface, and must be done with a secure connection to a server.

Only the Calypso debit key is stored in the HCE application for validation on entrance and control during travel, coupled with a mechanism of renewal of the Calypso Serial Number (CSN) to mitigate the risk of fraud : a part of the CSN contains date and time of validity of the debit key which shall be checked by the terminals.

Thales says: poor mobile network coverage can make HCE services inaccessible. In short no internet connection, no mobile transit service. Let’s compare the basic mobile transit card features of Mobile Suica with Calypso HCE:

It’s too bad IDFM didn’t study Mobile Suica shortcomings, they could have learned a few things. Most certainly they understand HCE shortcomings but chose it anyway for unknown reasons. Perhaps there are challenges getting Calypso retroactively installed on the eSE on many different Android devices and HCE was the only way to rollout Smart Navigo quickly. The Android platform reputation for keeping devices up to date with the latest software is lousy due to the slow manufacturer response.

Right out of the gate Smart Navigo HCE won’t support power reserve NFC transactions even on Android devices that support it for regular eSE NFC. In total, there are 6 core Smart Navigo features that are internet connection dependent vs 1 Mobile Suica feature. 6 more things to complain about when they don’t work…in other words the Smart Navigo HCE suck index is 6 times greater than Mobile Suica. If Suica App is anything to go by, there are going to be a lot of bad Google Play reviews for the HCE version of the Île-de-France Mobilités App.

iPhone and Apple Watch users can be thankful that Apple Pay Navigo will use eSE (as Samsung Pay Navigo already does), and avoid this mess when the service launches in 2023, matching the Mobile Suica experience, feature for feature.


2022-10-17 UPDATE

Navigo HCE does not support Express Mode, Android users have to wake-unlock-tap to validate. This is the price of using HCE instead of a secure element.

IDFM launched Smart Navigo HCE that does not support an Express Transit mode. Android users have to wake-unlock-tap to validate…the price of using HCE instead of an embedded secure element (eSE). That IDFM and Calypso went with HCE, despite the downsides and the fact that modern NFC capable smartphones all have eSE as standard, is very interesting and speaks volumes about the state of Android NFC and licensing fee headaches. Assume that Mobile Calypso don’t come pre-installed on smartphone eSEs, unlike EMV, then imagine the nightmare of: (1) dealing with all the Android manufacturers to retroactively update their devices so they are compatible with eSE Navigo (such as currently found on compatible Samsung Pay devices), and (2) getting Google Pay on board. Going the HCE route likely avoided a lengthy messy delay getting Navigo on mobile for the Android masses which is by far the majority in France.

This is exactly the mess that Apple Pay takes care of behind the scenes so users don’t see or deal with any of it. That’s the value of having a gatekeeper, better UI and security encourages users to use NFC payments and Apple Pay use far exceeds any other digital wallet…this is the benefit that Apple Pay delivers to developers. Too bad it’s going away for EU users that the EU is forcing Apple to give up their NFC gatekeeping role, which is very sucky indeed.

Apple Pay Navigo launch in 2023, open loop coming in 2024

After a long, long dance, Île-de-France Mobilités (IDFM) confirmed that Smart Navigo, the Paris region transit card for mobile will come to Apple Pay in 2023. As usual, Le Parisien broke the story (paywall), quickly reported on French Apple centric tech blog iGeneration.

“This time, for sure, it will be done”

After a test phase, in 2022, iPhones and Apple Watches will be able to replace the plastic pass distributed by IDFM (in 2023). “We cannot yet give a precise date, because it depends on the progress of Apple’s developments in Cupertino. But this time, for sure, it will be done, “says Laurent Probst, CEO of Île-de-France Mobilités. The contract is due to be voted on this Thursday at IDFM’s board of directors…

The contract between IDFM and Apple is spread over a period of five years, with a total budget of up to €5 million dedicated to the development of new services. A budget equivalent to that allocated to Android service developments operated by Samsung with IDFM.

Le Parisien

The contract with Apple is due to be approved by IDFM directors the week of February 20, we can thank the 2024 Paris Summer Olympics for breaking the Smart Navigo on Apple Pay logjam. Le Parisien has regularly criticized IDFM’s slow rollout of mobile services: “The modernization of the ticketing system in force on public transport networks in Île-de-France is not a long quiet river.” A timeline is helpful to understand the stalemate.

  • October 2017: Smart Navigo mobile was announced for 2019 launch. At the time IDFM said, “Unfortunately, it won’t be possible for iPhone owners to use the service since Apple does not yet allow third parties to access the NFC secure element in their phones. However, we are happy to explore the possibilities with Apple to offer the same service to all Paris public transport users.” In other words, IDFM wants to bypass Apple Pay Wallet and do everything in their own app.
  • September 2019: Smart Navigo launches on smartphones using an Orange SIM card, and on Samsung devices.
  • January 2021: Le Parisien reports that Smart Navigo is coming to Apple Pay. However this turns out to be a false alarm, instead IDFM releases a new version of the ViaNavigo iPhone app with support for adding money to plastic Navigo cards with the iPhone NFC.
  • November 2021: Le Parisien reports that IDFM suddenly terminated their partnership with Orange, IDFM announces a HCE + app strategy for Smart Navigo on Android that will launch in 2022. In other words, IDFM will do everything in their own app.
  • February 2022: Le Parisien reports Smart Navigo on Apple Pay will launch in 2023, IDFM confirms on Twitter and also announces EMV open loop support coming in 2024 in time for the 2024 Paris Summer Olympics.

French journalist Nicolas Lellouche independently confirmed the Apple Pay Navigo 2023 launch directly with IDFM and posted some details. Expect direct adding in Wallet app with Apple Pay recharge, similar to Suica, PASMO, Clipper, TAP and SmarTrip. An updated ViaNavigo app will provide extra features for commuter passes and more service options.

French reaction on Twitter was interesting and varied. People complained about the long lag getting Smart Navigo on iPhone but the equally long delay getting Smart Navigo on all Android devices, not just Samsung Galaxy, is more interesting and revealing. IDFM has spent a lot of time and expense working with Calypso Networks Association, the transaction tech used for Navigo, to develop the less secure network dependent Calypso HCE ‘cloud’ secure element approach. It flies in the face of where payment transaction technology has been going with eSE as standard hardware on all modern NFC devices. It’s almost like Ferdinand de Lesseps digging a sea level Panama Canal when a lock-and-lake canal was the better technical choice all along.

As for Android Calypso HCE performance vs Apple Pay Navigo Calypso eSE performance, I suspect the network dependent HCE on Android will be problematic. It will certainly be problematic, and challenging, for non-Apple smart wearables. If there is anything the bad user reviews of Suica App tell us, it is that network connections in station areas and on trains are never reliable and Android NFC adds layer upon layer of support complexity. No network = no HCE service, it’s that simple. Apple Pay Navigo will work without a network connection, just like all transit cards on Apple Pay, and will work great on Apple Watch too.

For this reason IDFM has to focus all of their system resources on the much more complex Android launch this year. They could certainly launch Apple Pay Navigo sooner if they really wanted to, but it’s better to do these things one platform at a time.


Related
Contactless Payment Turf Wars: Smart Navigo HCE power play
Smart Navigo reportedly launching on Apple Pay

Contactless Payment Turf Wars: the Smart Navigo HCE power play

Don’t you love how big organizations play fast and loose with big concepts like Host Card Emulation? HCE was SimplyTapp created technology that Google incorporated into Android Pay in 2013 sowing endless nonsense and confused debate about ‘open’ vs ‘closed’ NFC, aka the secure element wars. Back then industry pundits said:

The significance of HCE is that it frees NFC from dependence on the secure element, which has largely been controlled by mobile carriers. Banks, merchants, and wallet developers must pay fees for access to that chip. Yeager is counting on HCE to scare up interest among issuers and kickstart NFC, which has been stuck in neutral for years.

SimplyTapp, the Power Behind Google’s NFC Workaround, Aims at Mobile Banking

HCE was created when the cloud was seen as an answer for every problem. All it did for ‘freeing’ NFC from dependence on the secure element on a device was make it dependent on a network connection to connect with a ‘secure element in the cloud’. But this was overlooked in the rush to ‘free NFC’ from the evil grasp of mobile carriers.

How little things change, swap ‘evil mobile carriers’ for ‘evil Apple’ and you have exactly the same self serving ‘open’ vs ‘closed’ NFC chip nonsense that people are debating in Europe and Australia today. FeliCa Dude, the ultimate industry insider who has experienced it all, said it best: ‘It’s all eSE or nothing now.’

Let’s make this simple as possible and list the industry forces in the NFC secure element wars:

  1. SIM Secure Element (SE) used by the mobile carriers for carrier locked NFC payments
  2. Embedded Secure Element (eSE) used by smartphone manufacturer digital wallet platforms (Apple Pay, Samsung Pay, Huawei Pay that use customized eSE and truly control it, off the shelf all-in-one NFC chipset users like Pixel and Xiaomi not so much)
  3. Host Card Emulation (HCE) is a secure element in the cloud strategy used by banks and card issuers on network connected Android devices using their own apps that bypass #1 and #2.

Carriers, smartphone manufacturers, banks•card issuers. Carriers lost out long ago. A classic case would be NTT docomo who built the worlds first major digital wallet platform, Osaifu Keitai, using Sony Mobile FeliCa technology back in 2004. Osaifu Keitai eventually made it to the other major Japanese carriers (KDDI au and SoftBank) but the carriers made the mistake of locking and limiting Osaifu Keitai service to SIM contracts and their own branded handsets.

More than anything else, carriers milking Osaifu Keitai as an expensive exclusive SIM contract option instead of making it a SIM free standard for everybody, was the reason why Osaifu Keitai growth stalled. The 2016 launch of Apple Pay in Japan circumvented the entire SIM SE mess with its own eSE, and gave Mobile FeliCa the second chance it’s enjoying now.

Smart Navigo power play
Smart Navigo is the Île-de-France Mobilités (IDFM) Paris region transit card for mobile on Galaxy devices, and Android smartphones with Orange SIM cards. France was an early innovator of NFC on mobile phones but it did not lead to early mobile transit adoption: Smart Navigo launched in September 2019.

Fast forward to 2021, today in LeParisien: Île-de-France: why some smartphones no longer allow access to the metro. A step forward, a step back. The modernization of the ticketing system in force on public transport networks in Île-de-France is not a long quiet river.

What LeParisien was reporting was that IDFM suddenly ended their partnership with Orange: “As long as you do not change your SIM card, the service is operational: you can continue to buy tickets and validate them with your phone,” If customers change their Orange SIM card, Smart Navigo no longer works. IDEM is freeing Smart Navigo from the evil grasp of a mobile carriers.

The French Apple news site iGeneration reports:

A new solution is scheduled for deployment in mid-2022. It will be open to all Android smartphones, without operator constraints, thanks to HCE (Host Card Emulation) technology that emulates cards in a mobile application, allowing it to free itself from NFC constraints. HCE was also partly used for the SIM card developed by the start-up Wizway on behalf of Orange.

It’s 2021, the secure element wars ended years ago. Perhaps IDFM didn’t get the message. Or maybe they want to turn back the clock and fight the battle again. IDFM has spent a lot of time and expense working with Calypso Networks Association, the transaction tech used for Navigo, to develop the less secure network dependent Calypso HCE ‘cloud’ secure element approach. It flies in the face of where payment transaction technology has been going with eSE as standard hardware on all modern NFC devices.

It’s important to remember that one problem with the term HCE is that people and companies use it very loosely. All secure element methods have to load payment credentials from the cloud at some point. The big difference is that eSE and SIM SE have secure physical areas to store those payment credentials on the device, HCE does not. Far too many people assume that any kind of loading from the cloud = HCE, it does not. HCE = storing on the cloud.

This cloud approach has downsides outlined by Thales:

With HCE, critical payment credentials are stored in a secure shared repository (the issuer data center or private cloud) rather than on the phone. Limited use credentials are delivered to the phone in advance to enable contactless transactions to take place.

This approach eliminates the need for Trusted Service Managers (TSMs) and shifts control back to the banks. However, it brings with it a different set of security and risk challenges…

A centralized service to store many millions of payment credentials or create one-time use credentials on demand creates an obvious point of attack. Although banks have issued cards for years, those systems have largely been offline and have not requiring round-the-cloud interaction with the payment token (in this case a plastic card). HCE requires these services to be online and accessible in real-time as part of individual payment transactions. Failure to protect these service platforms places the issuer at considerable risk of fraud…

All mobile payments schemes are more complex than traditional card payments, yet smart phone user expectations are extremely high:

•Poor mobile network coverage can make HCE services inaccessible.
•Complex authentication schemes lead to errors.
•Software or hardware incompatibility can stop transactions.

What is Host Card Emulation (HCE)?

The two key takeaways are: 1) HCE shifts control back to banks and card issuers, 2) No network connection = no HCE. Think of HCE as the NCF equivalent of QR Code payment services like AliPay and PayPay that also send payment credentials to the app, just in a different format.

Apple Pay has succeeded because it delivers on those high smartphone user expectations better than any other digital wallet out there. That’s why JR East needed to get Suica on Apple Pay to take Mobile Suica to the next level combining ease of use with growth, which is exactly what happened.

IDFM unceremoniously dumping Orange and going all in with HCE says to me that IDFM wants full control and nothing to do with carrier SIM SE, smartphone manufacture eSE, nor pay transaction fees to anybody… it’s our app or nothing.

We won’t know the full story until the HCE Android service starts sometime in 2022, presumably after pay-as-you-go functionality is fully operational and ready on all exit gates. IDFM has been in talks with Apple ever since Smart Navigo was first announced in 2017. At that time they said:

“Unfortunately, it won’t be possible for iPhone owners to use the service since Apple does not yet allow third parties to access the NFC secure element in their phones. However, we are happy to explore the possibilities with Apple to offer the same service to all Paris public transport users.

Apple Pay Smart Navigo has yet to appear. If IDFM is waiting for Apple to support HCE, it will be a long wait. IDFM released an updated iOS app earlier this year that added iPhone recharge functionality for plastic Navigo cards.

One last thing: smart wearables won’t work with a HCE only Smart Navigo strategy. This is the lesson that Fitbit and Garmin have learned well from Apple Watch for deploying Mobile Suica on their devices: keep things simple and on the device for local processing without a network connection. This is what makes the Suica support coming to WearOS so interesting, it might succeed in beating Android as the first non-Apple global NFC device.

As for Smart Navigo, indeed a step forward, a step back. The IDFM journey to mobile ticketing for everybody is not a long quiet river.


This concludes the final installment Contactless Payment Turf Wars. It has been an unexpectedly longer series than planned. I hope people enjoyed reading them as much as I enjoyed writing them. Thanks always and happy transits!

My Cousin Apple Pay

So the EU is going ahead with ‘open NFC’ antitrust charges against Apple. As posted back in August 2020, the whole open vs closed debate is not easy to define. It’s probably easier to look at it from the simplistic App Store debate of letting developers bypass Apple’s in-app payment mechanism to avoid paying the ‘Apple Tax’, because that’s the box most people will understand.

We’ve already seen banks and Apple chafing over transactions fees on multiple occasions, the latest being ‘Banks Pressuring Visa to Cut Back on Apple Pay Fees‘ because Apple dared release their own credit card under the Mastercard brand via Goldman Sachs. German banks and Australian banks in particular demand the right to use iPhone NFC in their own payment apps instead of Wallet so they can harvest the user data they can’t get via Apple Pay and drop Apple Pay support all together in favor of their own proprietary payment apps (our exclusive card comes with our exclusive app). But there’s an aspect of the ‘open’ argument that will not be discussed by EU regulators, the banks and credit card companies.

I’ve been watching ‘My Cousin Vinny’ a lot recently. I love the courtroom scenes with Joe Pesci’s Vinny character turning the prosecution arguments upside down. There’s a key scene early on when Vinny uses a pack of cards to convince Ralph Macchio’s character to give Vinny a chance to defend him: ‘the prosecutors are gonna show you bricks with solid straight sides and corners, but they’re going to show them in a very special way’ so that judge and jury see bricks instead of playing cards, which is what ‘open NFC’ arguments are: paper card illusions.

NFC is just hardware, it’s worthless without the software protocols that drive it. NFC also has different definitions. The bank industry defines NFC as NFC A-B ISO/IEC 14443. The NFC Forum defines NFC as NFC A-B-F for device certification. On the protocol side the bank industry defines NFC as EMV because this is their industry standard created and managed by EMVCo (Europay-Mastercard-VISA initially, now collectively owned by American Express, Discover, JCB, Mastercard, UnionPay and Visa).

Are EU regulators going to argue that ‘open NFC’ is defined as NFC A-B-F on the hardware side and EMV, MIFARE, FeliCa protocols on the software side? Of course not. They will narrowly define their Vinny brick as NFC A-B and EMV, and maybe Calypso as the transit protocol is used in France for transit. Why would they do that?

It’s very simple. European banking interests don’t want to pay transaction fees to Apple, the Apple Pay tax. They want to cut out the middle man with their own exclusive apps and harvest user data. They don’t want inconvenient questions such as why there are all those different NFC standards and protocols out there, how this came to be and what really constitutes ‘open’. Why did the ISO/IEC Joint Technical Committee choose Phillips NFC-A and Motorola NFC-B while shutting out Sony NFC-F? Was that part of creating an ‘open’ and level NFC playing field on the global marketplace? Of course not, it was about playing favorites while shutting Sony and Japan out of the game. Now they want to do the same to Apple Pay. I still think Junya Suzuki is right: the EU will never demand the same thing of Samsung Pay or Huawei Pay that they are demanding from Apple.

Sawada Sho tweeted a thoughtful question recently regarding the App Store in-app payment controversy. He pointed out that gaming and other platforms charge developers great deal of money for hardware and software access, nobody questions that. Apple offers a lot of access for a very low price, is it fair to demand free passage on the App Store because it is Apple? Sho san thinks the Apple transaction cut is a fair tradeoff. Some tech writers have occasionally asked the same basic question: what’s fair?

EMV, MIFARE and FeliCa all have licensing and certification fees that all customers (developers) pay. Apple has gone to a lot of expense licensing those technologies in addition to licensing a GlobalPlatfrom Secure Element that they build into their own Apple Silicon. Those costs are recouped by Apple Pay transaction fees and fund future developments like digital keys with UWB, ID and other Wallet goodies we’ll get later on in the iOS 15 cycle. I’ve said it before and say it again: Apple took the time and expense to build a first class restaurant and outsiders are demanding the right to use Apple’s kitchen to cook their own food to serve their own customers in Apple’s restaurant.

I guess EU regulators want to give those away free to EU banking interests and let them have their way in the interest of ‘open standards’ that they define and end up protecting the home turf. That sounds like a good deal to me.