Mercator Blog

Start-ups Are Transforming the Payments Industry
Date: December 10, 2013
Research Team
Every day we wake up to a news story about another innovative new concept in the payments industry, mostly from companies such as Google, PayPal, and Square etc. But more recently there have been a spate of news announcements from small start-ups that are capturing the imagination of this industry and beginning to transform it in one of two ways: Either the innovation makes large organizations (from banks to nonbank providers) stand up and take notice, or these organizations are collaborating with the start-ups to leverage their technology within the organizations’ products to bring new concepts quickly to market without incurring huge costs.

One such start-up is Austin, Texas-based SimplyTapp, Inc. This company with just six employees was responsible for a Near Field Communications (NFC) workaround recently announced by Google for its Google Wallet service that allows Google to skirt the secure element, a chip that stores cardholders’ payment credentials, by facilitating a direct connection to initiate a mobile payment via a process called Host Card Emulation (HCE).

The telcos’ control of the SE that stores cardholders’ credentials has hindered the growth of NFC mobile payments. Using HCE also saves others in the payment ecosystem a lot of money that would have gone to mobile carriers in usage fees to access the SE. HCE enables NFC transactions on mobile devices that may or may not have a SE chip or SIM card. What makes this technology exciting is that it allows point-of-sale terminals to recognize the mobile phone as if it were a contactless card accessing cardholders’ credentials stored on a remote server (“in the cloud”) and not on the SE. This basically solved Google’s frustration over the lack of uptake of Google Wallet service. Before SimplyTapp’s HCE workaround, the underlying technology infrastructure within the telco framework was too difficult to navigate since the telcos controlled all the access to the SE and thus cardholders’ payment credentials.

The next move by this small start-up was brilliant. SimplyTapp is now in active conversations with various banks to integrate its cloud-based payments tools into the financial institutions’ mobile banking systems so customers can use personal mobile devices to initiate tap-and-go payments and redeem and collect rewards at merchant locations. Many consumers are active on their bank’s mobile banking app and trust its safety and security. SimplyTapp will integrate its technology into these platforms and also ensure certification from the card networks and others and thereby contribute to offering a safer and secure payments system.

Innovative companies like SimplyTapp are “simply” what makes the U.S. a leader in technology and business.