Mobile payment initiatives have largely failed because they focus on changing transactions instead of changing the way consumers and merchants engage with each other, according to Carta Worldwide, which touts new tokens as a way to reverse that.

Tokenization typically refers to the process of replacing a customer's account number with a unique identifier for each transaction, for the purpose of improving security. But a token can serve other purposes.

“Smart tokens”—a twist on existing mobile payments leveraging existing payment rails—could be the key to making mobile payments more dynamic and relevant, said Giles Sutherland, Carta's vice president of strategic alliances. The company hopes this new technology can boost mobile payments adoption that has largely underperformed thus far.

“Smart tokens can enable merchants or banks to send a consumer who opted in a specific offer that’s customized to a certain store, time, location or amount, which opens up mobile payments to dynamic relationships going beyond the usual linear transaction path,” Sutherland said during a presentation at Mobey Day, a forum sponsored last week in Toronto by the U.K.-based payments industry consortium Mobey Forum. Carta is based in Oakville, Canada, with operations there and in Europe.

Companies that have adopted Carta's technology include PayPal, which uses the hosted platform to support contactless payments about 500 million Vodafone Wallet customers in Europe. IMAGE: Bloomberg News

The effect of a smart token is engaging the consumer in a purchase in a way that’s completely different than the usual, passive approach, by providing a customized experience where the offer or reward can be instantaneously tailored to the user’s preferences, Sutherland explained.

“This concept is designed to give customers unique and novel experiences for purchases on their mobile phone, based on contexts that can include place, time, activities, individuals and groups,” he said.

Smart tokens operate on existing payments architecture and can be created easily by any merchants that accept card payments, Sutherland said. Smart tokens function within existing mobile wallets and Near Field Communication infrastructure and can be processed at payment terminals just like any other tokenized payment, with the same level of security, he added.

Merchants or banks can create a smart token supporting an offer available at a certain location, time and for a specific value and push it to a consumer who opts in, and the token is available only to the specific consumer who receives it, making it very flexible and low-risk, he explained.

In addition to merchant offers, smart tokens can support gift cards and can also be used to deliver secure credentials to consumers for specific types of actions, such as instant credit and lending, Sutherland said.

“What smart tokens represent is a way for merchants and banks to engage consumers by hitting them with offers and deals during specific moments and during activities that are relevant to their lives, which has big potential for the way people consume products through social media, including the gig economy and emerging delivery services,” he said.

It’s early days for smart tokens, a product Carta is just now bringing to the market, Sutherliand acknowledged. But Carta sees strong potential for smart tokens based on its experience providing tokenization and processing services to many banks, merchants and mobile phone companies in the U.S, Canada and Europe, Sutherland noted.

Carta also sees particular opportunity in leveraging smart tokens for gift cards, based on its work for many clients in prepaid card account management, and in third-party wallet support, Sutherland added. PayPal uses Carta’s hosted platform to support contactless payments within the Vodafone Wallet app, available to about 500 million Vodafone customers in Europe.

“Consumers know what mobile payments are, they see Apple Pay, but they’re not using it broadly because there’s no contextual, relevant reason to pursue it,” Sutherland said. “What we think will win the day with mobile payments is turning it into a more valuable, relevant experience that makes sense, that adds so much benefit that they turn around and pass it on and look for the next way they can use it. That’s how we believe people could get hooked on using mobile payments.”

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