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  5. > Are Digital Transactions Secure Enough? : The Need to Create a Set of Common Rules for Global Payment to Minimize Fraud and Hacking


The payment industry is in constant evolution, and acquisitions and partnerships in 2014 consolidated the strategies of many companies. Furthermore, new entrants appeared in this ecosystem to propose alternative approaches, to facilitate payment integration on Web sites, or to propose original business models.
The most important announcement this year is the Host Card Emulation (HCE) alternative that is supported by major financial institutions. This cloud-based technology drastically changed the way mobile payment is processed. However, one of the negative impacts of this solution is a security level that is lower than Near Field Communication (NFC) technology. Frost & Sullivan thinks that HCE is not a threat to NFC, but that it is another solution to be experienced by service providers as it offers alternative answers regarding the consumer management and it facilitates and reduces the deployment phase.

This innovative solution is not, at the moment, entirely documented and specifications are not totally published. Furthermore, the specifications are not furnishing all answers to existing question and use cases.
The payment ecosystem was particularly targeted this year by a different type of attacks. All payment processes were targeted. Many security and data breaches were exploited by a fraudster for the purpose of collecting sensitive information. This is a global threat and no country could argue that it is immune to this type of attack. Only global security initiatives and common rules can have a positive impact in dissuading potential fraudsters.


This analysis will answer the following questions for a global audience:
• Why can a cloud-based solution be seen as an alternative?
• What will be the impact on the other payment initiatives?
• What are the security risks during the transaction process?

The payment industry is in constant evolution. A five-year strategy roadmap was written by major financial institutions for the migration from contact payment cards to contactless cards (2012 to 2017). In Europe and Asia-Pacific, the chip and PIN standard Europay MasterCard Visa (EMV) is the reference for international secured payment. After this migration and after the change in the payment terminal infrastructure to accept contactless technologies, the next step is to switch from contactless cards to mobile payment alternatives. In 2010, NFC technology was ready and analyst firms were forecasting an important ramp up each year from 2010 to 2013.

This strategy roadmap was deeply impacted by the 2012 announcement of the PayPal mobile wallet solution. This was the first time a major player from the online payment world (Internet) decided to enter the physical payment world. This had a major impact on the well-established ecosystem. Market players were forced to review their product line strategy or to accelerate the launch of their mobile wallet solution. As of 2014, no major changes appeared and banks and financial institutions started to push to find an alternative to NFC. System integrators were asked to propose solutions that are easy to install, easy to maintain, easy to deploy, and cost efficient. At this time, the only option was cloud-based services. For the first time, financial institutions and banks did not mention security as the major feature of a new payment service.

At the end of 2014, after the Apple announcement of Apple Pay and the strong support of NFC technologies, the payment ecosystem is back to where it planned on being one year ago. Service providers are in the dark about which technology choice to provide.

Table Of Contents

Are Digital Transactions Secure Enough? : The Need to Create a Set of Common Rules for Global Payment to Minimize Fraud and Hacking
Summary 3
Background 3
Is Host Card Emulation a Real Alternative? 5
What are the Security Risks in Using HCE? 8
What are the Possible Directions to Follow to Deliver a Safe HCE Solution? 10
Last Words 11
Legal Disclaimer 12
The Frost and Sullivan Story 13

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