In my discussion with Marc Keller he explained that Tokenization is the biggest trend in the payments industry in the US. He was right. In my research and discussions I found that both the incumbents and startups are looking at it closely. Banks, payment processors and technology companies are working on it. What would happen if this materialized? What does it mean to the eco-system. Well, for one it could mean a hollywood kind of a sequence – whoever stores card information today could agree to part with all of their card numbers on file and replace them with Visa tokens. And rest would be history. Visa would become the most powerful company on earth.
Okay. Coming back to reality. Building an alternate payments ecosystem requires a number of entities working together in order to deliver NFC or other tech based payment services to the end users. One of the issues is the interoperability between the players and to resolve this issue the role of trusted service manager (TSM) is proposed to establish a technical link between MNOs and providers of services, so that these entities can work together. Tokenization helps you to do that.
Without going into too much of technicality, think of a solution that provides lifecycle management of apps, cryptographic keys and SE (secure elements) on (say) NFC mobile devices over the air. Recently we talked about Visa’s (and perhaps Mastercard, Amex) new proposed standard. This new token scheme turns Visa, Mastercard and Amex into “TSMs” and enables payments in the OS.
Tokens are beginning to be used everywhere in the payments value chain.
- Take for example Walt Disney World’s Key to the World card replaces account details with a static token used with special contactless card readers at its theme parks. The Disney wristbands that are doing magic.
- Token based solutions have also appeared from some providers such as Zooz - how it works? when an online merchant or app publisher is executing the script to initiate the payment process for a customer, the code gets a token back which is passed back to the client. This is where the actual payment screen appears for the user. The system is made very secure by tokenization.
Banks are also making an effort in this direction. Visa probably wants to get ahead in the game by telling the entire eco-system that they can provide lower interchange by reclassifying compliant tokenized cards within wallets as Card Present. It will be interesting to see what happens!