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Visa: 2015 is the year of tokenization

2015 is to be the year of tokenization – consumer demand to use smartphones and wearable tech devices for payments will deem it so. 

Tokenization

That’s according to Visa Europe who are on the cusp of launching tokenization in Europe.

“We believe that 2015 will be the year that mobile payments will be in the hands of consumers across Europe. Tokenization is one of the most important technologies to emerge in digital payments and has the potential to start a whole new chapter in the kinds of products that are developed.” – the words of Sandra Alzetta, Executive Director, Core Products for Visa Europe, back in February 2015.

Mobile payments is a more mature market in Europe than, for example, the U.S., and consumers are more attuned to using their smartphones for payments. The use of contactless payments have been increasing in Europe ever since Visa rolled out the first terminals in 2007.

A recent IHS Technology report Western Europe is still “very fragmented” for mobile payments, said the report, but contactless technology is gaining momentum. It says Nordic countries have the most successful non-NFC mobile payments services, while the UK leads on contactless.

A highlight for Visa Europe was this continued surge in contactless payments. Their 2014 report stated that: “Across Europe, more than 100 million Visa cards are contactless, as are 1.8 million Visa terminals. Hundreds of big-name merchants are rolling-out contactless and annual transaction volumes [in 2014] exceeded 460 million which is 263% higher than the previous year and the value of those transactions is 283% higher than the previous year.”

Indeed, contactless card payments in the UK trebled in 2014 (ten contactless transactions every second). There are no problems with contactless, it’s use is booming – but what about mobile payments?

Contactless now, mobile tomorrow?

The prime barriers to widespread adoption of mobile payment use at the POS remain necessity and security. Is paying via your mobile device (phone or wearable piece of tech) more convenient than using a payment card? If it is, is it safer? These are the critical points.

That’s why Visa is banking on tokenization becoming the vehicle for consumers to truly embrace mobile payments.

Visa’s global head of strategic partnerships, Bill Gajda, believes that the introduction of tokenization is making the mobile payments space more secure. As such, consumers are more likely to participate in mobile commerce and businesses are feeling more comfortable about protecting the information of these consumers.

More platforms are expected to adopt tokenization in the coming years. One such example is the new Samsung Pay/MasterCard service supporting digital tokens, it’s due to launch later this year. Matt Barr, MasterCard’s group head, of U.S. emerging payments, stated that the key to using tokenization with the new Samsung Galaxy S6 was “leveraging the power of tokenization, so getting to a point where a MasterCard account is provisioned onto a smart device and at no point is that card information given to the merchant as part of the transaction.”

Trust in tokenization

The trust in tokenization is two-fold: the belief is that consumers will become more confident in the m-commerce process and that businesses will feel likewise about protecting consumer data.

Advocates of tokenization state that its implementation would remove a merchant from the scope of Payment Card Industry (PCI) compliance. This occurs as merchants no longer process sensitive card data, and – crucially – have no access to it in storage. This feature of tokenization is a major plus point for merchants, most of whom do not want the headaches associated with PCI audits and compliance processes.

Outlining Visa’s plans to introduce tokenization to Europe by mid-April 2015, Sandra Alzetta added: “We’ve designed this flexible and scalable service, enabling issuers, merchants, and acquirers to provide consumers with the next generation of innovative payment methods – all with the high level of security they expect.”

This piece from app4phone.fr states that Visa has already partnered with four French banks with access to over 400,000 locations for an Android mobile payment experiment. The article states that the system used in Android 4.4 KitKat operating system guarantees the protection of the consumer’s banking information via tokenization. This, of course, relates back to Visa’s tokenization declaration back in February 2015. If customers and merchants don’t trust the system then it falls at the first hurdle. The security and the resulting trust element of any new system is the key to its implementation.

How does tokenization actually work?

The tokenization service protects customer data, substituting the payment account information found on a plastic card with a series of numbers that can be used to authorise payment without exposing actual account details. When consumers use their mobile device to make a contactless payment in a store, a token is submitted, rather than their account details.

Hackers simply can’t steal what’s not there: that’s tokenization’s trump card. The card PAN is replaced by a token that has no exploitable meaning. The token is worthless to those without the key to decrypt it.

Once consumers are confident enough – and tokenization is being used as the comfort blanket – then there should be a marked increase in the use of mobile payment services such as Apple Pay, Samsung Pay, and Google Wallet.

Apple Pay is actually the first implementation of the EMVCo’s tokenization specifications, first revealed back in March 2014.

Where Aviso comes in

Our Novate payment switch is built with tokenization in mind: Novate can access token vaults in real time to dynamically replace tokens with real card numbers for authorization and settlement messages. This allows existing point-of-sale systems to be seamlessly updated in order to support tokenization, without a wholesale replacement of a retailer’s payment systems.

This is critical for merchants and acquirers alike. With the advent of any new technology the first reaction is always “do we need it”. The payment world is moving towards tokenization and acceptance of this new service is required. Now the key question for merchants and acquirers will need to be: how can we change systems to accept tokenization in the most cost-effective manner? And, this is where we come in. There is no need for wholesale changes to payment processing systems. Using Novate simply removes this headache and enables merchants to concentrate on their core business model.

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