If Visa and MasterCard seem to be shining an extremely bright spotlight on their tokenization efforts, it's because they view it as vital to their survival.
Tokenization replaces a card's account number with a dummy number called a token; if the token is stolen, it can't be used to create counterfeit cards. This technology is used in Apple Pay and other mobile wallets, and it's one of the tools the card brands see as vital to the shift to digital payments.
"Tokenization is foundational as part of diversification. We know it will take a long time, but cards will go away and we will be presenting information using a variety of devices," said Sam Shrauger, senior vice president of digital solutions for Visa.
To further its commitment to tokenization and digital payments, Visa this week integrated its tokenization service into its online wallet, Visa Checkout. Visa is also working with merchants to apply token technology to cards on file.
"If you go back to the genesis of tokens, we did this with an eye toward the future of payments in digital commerce," Shrauger said, adding tokenizing cards on file protects information that's stored in disparate databases in a variety of merchant classes and payment types, such as content providers, billers and companies that charge on a subscription model that are turning to online payments via stored accounts. "What we didn't want to happen is a proliferation of sensitive information in the digital world," he said.
Through this effort, Visa hopes to secure the digital channels which are drawing more attention from fraudsters now that EMV security has strengthened the point of sale in the U.S. At the same time, new payment devices such as Apple Watch and other wearables will spark more innovation and provide more opportunity for tokenization to take hold, Shrauger said.
"Right now, mobile phones are staring us in the face, but every one of these connected devices will store payment information that we want to secure," he said.
Fully tokenizing digital payments and stored cards will lead to scenarios that require less interaction from consumers and retail staff, thus reducing the risk that any sensitive data is in a position to be exposed.
"Transactions will occur with two devices communicating with each other and no individual will be in the middle," Schrauger said. "In all of these cases the security of the information and the dynamic nature of the tokens to generate a one-time code is absolutely critical."
Visa Checkout is also critical to this strategy, since it gives the card network inroads into the digital storefronts of Staples, Gap, Neiman Marcus, Virgin America and about 250,000 other large brands, according to Visa's latest adoption numbers. Visa Checkout has also signed up more than 7 million users and 470 financial institutions.
While there are standards for how tokenization is deployed, the card networks offer distinct tokenization services. MasterCard has its own initiative that uses tokenization to drive payment app development for Internet-connected devices.
The tokenization strategy comes with challenges, according to Tim Sloane, vice president of payments innovation and the director of the emerging technologies advisory service at Mercator. While the pushback has not been as severe as it has for the EMV migration, there has already been some rumbling over the eventual cost of the card network tokens following early-stage discounts.
"From small to large, acquirers and merchants have already implemented tokenization or encryption technology that is not based on the Visa or MasterCard tokenization platform," Sloane said. "Replacing the existing infrastructure would prove costly."
A MasterCard spokesman said the card network does not currently charge issuers for its Digital Enablement Services, which includes tokenization. A Visa spokesperson said the fee waiver is indefinite.