A Russian mobile wallet and services provider is turning to embedded secure elements in a trio of Android smartphones to launch a MasterCard PayPass application in Russia this summer.

St. Petersburg-based i-Free will be using embedded chips in two HTC smartphones and a Philips model to implement a prepaid PayPass application issued by Tinkoff Credit Systems bank, which bills itself as the No. 3 credit card company in Russia’s small but resurgent credit card market.

Depending on when the service actually rolls out, it could be among the first uses of embedded chips in NFC phones for payment or other secure applications, following the stunted rollout of NFC payment on embedded chips in the U.S. by Google, for its Android-based wallet. There was also a small launch of embedded NFC payment in China last year. 

Russia, where virtually all phones are sold on the open market, is seen as a promising market for embedded secure elements used for payment and is believed to be one of the markets Samsung is targeting with the embedded secure elements in its NFC phones, including the Galaxy S4. Samsung is working with both Visa and MasterCard to roll out payment on the embedded chips in its phones in certain markets globally.

Kirill Gorynya, general director of i-Free Innovations, told NFC Times that HTC and Philips are “deeply” involved in the planned roll out in the service, which i-Free said it intends to take nationwide in the summer. He said he hopes to add phones from other handset makers, including Samsung Electronics.

Plans also call for introducing transit ticketing and geo-location-based couponing from the wallet. Embedded secure elements are an option in certain markets for service providers to avoid working with mobile operators and their NFC SIM cards.

But Gorynya said plans call for using NFC SIM cards issued by mobile carriers for the service, as well. He said, however, that “business issues” with Russian operators have been blocking use of SIMs for the project so far.

Gorynya added that it was “not easy” either to gain access to the keys to the embedded secure elements in the HTC One, the mid-tier HTC One SV and the Philips Xenium W336, the latter a low-cost Android 4.0 smartphone targeted for such markets as Russia.

“I can say, both (handset) vendors are involved in the project deeply, and they are inside the service itself,” Gorynya told NFC Times. “It’s very important. So they really try to support the end-user product. They’re not just providing us the hardware. They are participants.”

He declined to disclose details of the involvement of the handset makers, but when pressed, said they would collect fees based–at least in part–on the number or frequency of use of the mobile-payment service. But they would not collect a cut of transaction fees.

“The business model itself, of course, it’s not, truly sustainable, because we have to do a lot of experiments in the field,” he added. “We are flexible about the business model itself. All other participants are also quite flexible, so we hope that we will fix all business related stuff during this year.”

I-Free will also serve as trusted service manager and mobile wallet software provider for the project.

NXP Semiconductors supplies the embedded chips for all three models, stacked with its NFC controller chip, Gorynya confirmed. The chip package is known as the PN65O. NXP’s chip would also enable use of Mifare-based transit-ticketing services. I-Free said it has a “commercial pilot” planned with a transit operator or authority in a small city this summer, but declined to elaborate.

The project demonstrates that HTC remains interested in marketing the embedded chips in its NFC phones in certain markets.

The Taiwan-based phone maker worked with payment scheme China UnionPay and China Merchants Bank last year to launch a payment service that put UnionPay’s Quick Pass contactless application on embedded chips in the HTC One XC, the Chinese version of HTC’s One X smartphone; and the lower-end HTC Desire C. 

Russia Target for Embedded Chips
MasterCard and probably Visa are believed to be supporting the roll out of point-of-sale terminals in Russia, as in some other markets.

At present, there are only around 10,000 activated point-of-sale terminals in Russia that support PayPass and most or nearly all also support Visa payWave.

That is a small percentage of the total of roughly 1 million POS terminals that Gorynya estimated are deployed in Russia, but the base of contactless terminals is growing fast, he said, and will soon reach 15,000, if it hasn't already.

MasterCard is also working with MTS, Russia’s largest mobile operator, which last year launched NFC payment on SIM cards, putting a PayPass application issued by own MTS Bank on the cards.

The telco recently said it has added payment from the large Russian Standard Bank and that it offers 10 NFC phones for use with its NFC SIMs, including five Sony Xperia models, the Samsung Galaxy S III and Galaxy Note 2. And MTS is also planning to expand to NFC-based transit fare collection in at least one city. Overall, MTS’ NFC rollout is believed to be small so far, however.

Downloading Service Via TSM
I-Free’s Gorynya said the payment applications on the MTS SIMs are preloaded and contends that that won’t be the case with the payment service that Tinkoff Credit Systems and other Russian issuers will offer using i-Free’s TSM service.

Consumers, even if they are not already customers of Tinkoff, would be able to apply for a prepaid card on their smartphones and download the application to the embedded chip. The process would take around 15 minutes, Gorynya estimated, which would be more convenient than the preloaded applications on MTS SIMs.

But the registration and downloads would be for prepaid cards. If i-Free adds credit cards from Tinkoff or credit or debit cards from other issuers, the application process would likely be more involved. In addition, users would have to update their Android operating system on the devices to get the i-Free-developed mobile wallet app, said the company.

I-Free will serve as both the TSM on the secure-element issuer side and the service provider side. For the latter, it will use its data center in St. Petersburg, Gorynya told NFC Times.

He said i-Free built the TSM in-house and acknowledges it does not yet have certification from MasterCard. But the payment scheme is in the process of granting certification, he said. This would enable the over-the-air provisioning and management of the PayPass applications.

Gorynya insists the company is not working with any established TSM platform provider. I-Free would presumably have to receive the MasterCard certification before the launch this summer. A representative from MasterCard Russia was not available for comment.

i-Free, founded in 2001, says it is one of the largest suppliers of mobile content in Russia and the Commonwealth of Independent States, or CIS, developing, licensing, marketing and selling such content as music, games and information. It is also one of the leading vendors of micropayments, using mainly SMS to date. The company began working on NFC in 2007 and formed a separate NFC unit the following year.

And i-Free plans to enable the service for Russian mobile operators, as well, which it works with to deliver other services to subscribers.

“We are absolutely agnostic to any type of secure element type and kind of secure-element form factors,” Gorynya told NFC Times. “We see that our main goal is to build the ecosystem, where the maximum quantity of service providers will be interconnected with maximum quantity of security elements.”

When asked about prospects for concluding a deal with Samsung to use the embedded secure elements in the device maker’s NFC phones in Russia and possibly other countries, Gorynya said i-Free has already worked with Samsung with mobile content and other projects.

“So we have very deep and successful relationship with Samsung,” he said. “So I hope and I do my best to welcome Samsung in this project.”