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MasterCard Trials Online Payments Secured on NFC Phones

PARIS, France – MasterCard Worldwide and ING bank have launched a trial in the Netherlands enabling bank staffers to shop on the Web and then make online payments with a PayPass application stored on a secure element in their NFC phones.

The cloud-based payment trial offers a glimpse of the type of technology MasterCard is considering introducing to bring about convergence of online and offline payments under its PayPass brand.

MasterCard demonstrated the online PayPass service Tuesday at the Cartes trade fair in Paris. In the trial, which began in October and will run through March, users can shop on a Web site on a PC then transfer the shopping basket to their smartphone, by scanning a QR code on the site. Or they can shop on the mobile Internet directly on the smartphone.

They would then enter their PIN code on the handset keypad and click to complete the online transaction.

The same NFC-enabled phone–using the same PayPass application stored on a secure element, which is a SIM card–could do an offline NFC transaction at the physical point of sale.

“You have three trigger points–what is consistent is the experience of actually making the payment is the same,” James Anderson, group head and senior vice president for mobile and emerging payments, told NFC Times.

ING is trialing the technology mainly in Amsterdam among 160 staffers, all of whom have been issued NFC-enabled Samsung Galaxy S III phones. SIM cards store a PayPass debit application.

“Use of EMV technology and mobile–It’s the same kind of safety that’s already there in a card-present situation–being able to use it on the Internet as well,” Mark Buitenhek, global head of payments and cash management for ING, told NFC Times. “If this really works, at the end of pilot, ING and MasterCard will evaluate. MasterCard has to decide whether they are going to push this broadly.”

Of course, the more secure cloud-based payments would only be possible on NFC phones, with the PayPass application delivered to the secure element by a trusted service manager.

MasterCard first discussed putting online and offline payments under a single brand in May when it introduced its white-label wallet offer, PayPass Wallet Services. Besides payment, MasterCard said the wallet would include account look-up before purchases, spending controls and alerts and delivery of targeted offers, coupons and loyalty programs.”

Unlike online purchases commonly conducted today, secured largely with a username and password, the PayPass EMV application on the secure element would generate an EMV cryptogram–like the one produced by EMV cards or EMV applications on NFC phones when consumers insert or tap them on point-of-sale terminals.

The cryptogram would be sent over the mobile network to the merchant’s Web payment gateway and then on to the issuer for authorization.

Since the transaction is secured with a  PIN and hardware token and uses a cryptogram just like the one used for an in-store transaction, the cloud-based PayPass transactions could be considered card-present transactions, Jorn Lambert, head of emerging payments for MasterCard Europe, told NFC Times.

But he stopped short of saying that MasterCard would definitely change the card-not-present interchange rates used for such online transactions to lower card-present rates.

“What the economics will be will be a debate on a local basis,” he said. “If the security piece is the only thing that drives interchange, then it would be card present. It’s not the only piece.”

Local or regional MasterCard executives, likely in consultation with big merchant acquirers, would make the decision to classify such online PayPass transactions as card-present transactions and to set the rates accordingly. Card-present interchange rates are lower than card-not present rates and lower interchange translates into lower fees for merchants.

MasterCard also announced plans a year ago with chip maker Intel to enable consumers to tap their NFC phones and contactless cards on notebook computers to shop on the Web. The multiyear collaboration is intended to build the technology, including contactless or NFC readers, into a new category of slim, light laptops packing Intel chips, which the giant chip maker calls Ultrabooks. The transactions also likely would be considered card-present transactions. 

If designated as card-present transactions, the online payments would also mean lower transaction fees for issuers. But ING, which is both one of the largest issuers and acquirers in the Netherlands, believes a smoother online payment experience would be a net positive because it would mean more transactions–even if the bank earned less in fees on each transaction.

“If you have simple and easy to use payment, that helps develop the market,” Buitenhek said. “I’d rather have smaller piece of a much bigger pie.”

Merchants and such mobile-wallet players as Google have argued that online payments on smartphones should not be charged at card-not-present interchange rates—especially if the online transactions are conducted in the store. Geo-location technologies, such as GPS, could prove that consumers are present when making the purchase, they say. And the Google Wallet has an NFC component, as well, to prove the consumers are inside the store.

MasterCard said it would be possible for consumers to do cloud-based payments using the secure element on their phones to make purchases inside some stores–in the aisles, for example, not at point-of-sale terminals.

But MasterCard made it clear it still supports NFC technology, that is, enabling consumers to make payments by tapping their NFC phones at the physical point of sale.

“It’s (NFC) the fastest; it’s the quickest; it’s the best user experience,” MasterCard’s Anderson said. “It’s the least clunky. It works in different environments with no connectivity. NFC is fit for purpose, which is NFC payments.”

ING is also planning to roll out contactless cards and POS terminals in the Netherlands and is expected to put its application on NFC phones for offline transactions.

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