Visa, MasterCard's Latest Efforts Bet Big on Tokenization

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Visa and MasterCard are putting more resources than ever behind their tokenization services as they push to improve their standing in the overall digital payment market.

While Visa is touting its Visa Digital Enablement Program as a way to simplify agreements between mobile wallet makers and card issuers, MasterCard last week extended tokenization support to private-label credit cards, apps, e-commerce and recurring billing programs.

These efforts demonstrate the maturation of a strategy that began several years ago when the two card networks launched plans to replace traditional card numbers with substitute values, or "tokens," for digital commerce. The use of tokenization deters theft because tokens can't be used to create counterfeit cards. Mobile payment initiatives such as Apple Pay use tokenization.

"I think there's a metaphor with the value that was created when Visa and MasterCard …  [enabled any issuer to] easily and quickly connect with any merchant for payments," said Thad Peterson, a senior analyst at Aite Group. "This has the potential to enable tokenized commerce across the retail economy."

BJ's Wholesale Club, Kohl's and JCPenney will be the first retailers to extend mobile payments to their private label (or store-branded) card users via MasterCard's tokenization service. MasterCard has also partnered with private-label issuers including Synchrony Financial and Citi Retail Services.

The card network hopes these and future retailer partnerships will quickly move a large number of private-label card users to mobile and other digital transactions.

"Every device will be used for commerce," said Ed McLaughlin, chief emerging payments officer for MasterCard. "We want to make that secure, and that is what token services do."

In a separate program, which offers tokenization services for card-on-file programs, apps and e-commerce, MasterCard is pursuing merchants that charge subscriptions or recurring fees, such as steaming media services and utility billers. 

These merchants usually store their customers' card numbers, creating security risks and other challenges. MasterCard will offer its Digital Enablement Service to allow issuers to replace credit, debit and prepaid card account numbers with tokens that work with existing acquirer and payment service provider encryption. The token services also do not have to be updated when the consumer's card number or expiration date changes.

MDES supports Near Field Communication (NFC) and in-app payments, as well as EMV security.

The power of tokens is their ability to scale across devices and merchants, thus facilitating the growth of mobile payment options such as Apple Pay and Samsung Pay, McLaughlin said.

The use of tokens adds EMV security to transactions performed with virtual cards, McLaughlin said. These virtual cards can be used by mobile devices and other computing hardware.

"The token can only be used for that specific context," he said, adding tokenization severely diminishes the opportunity for unauthorized use.

McLaughlin did not provide details on fees, saying MasterCard would enter into separate contract agreements with each of its partners.

Visa and MasterCard are approaching different parts of the market with token services, though both may face challenges in working with large mobile payment providers such as Apple, which wields considerable scale and negotiation power. Apple and may not easily acquiesce to policies such as Visa's rule that participants in Visa's token-powered mobile payments onboarding service not charge fees.

"For example, must Apple enable these [MasterCard] private-label tokens in Apple Pay, or does Apple retain the right to determine which issuers will, or will not, be accepted in Apple Pay?" said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. MasterCard did not return a query on that issue by deadline.

Banks may also face challenges stemming from which party "controls" the token.

"Tokenization efforts are ramping up, which will certainly help make digital payments more secure," said Zil Bareisis, a senior analyst at Celent. "As tokenization grows in importance, banks will be facing a strategic decision to what extent they should rely on third parties for tokenization support and where they should ensure they remain in control."

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