The Future of Payments

Tokenization Secures Mobile Payments 62 BANKING PERSPECTIVES QUARTER 4 2018 Tokenization protects sensitive data, such as a customer’s primary account number, by replacing it with a unique but random string of characters that has no meaningful value. When we see benefit and value for clients in enabling select services on platforms outside of our own, security, privacy, and customer choice always will be critical priorities. Payments, the most frequent interaction customers have with their bank, are one banking service that provides a great opportunity for banks to make their customers’ lives easier. Around the world, people are opening their wallets a lot less frequently as an increasing number of consumers use their mobile devices to pay for goods and services. Juniper Research estimates the number of global mobile contactless users will exceed 760 million by 2020, up from an estimated 440 million in 2018. 1 The same research forecasts OEM payment services, including Apple Pay, Samsung Pay, and Google Pay, will reach 450 million users by 2020, with Apple accounting for one in two OEM payment users around the world. Customers continue to adopt new technologies at a rapid pace, and this is changing their lifestyles while also affecting how banks operate. Today’s customer demands seamless, best-in-class experiences for everything, so we must deliver on that and meet our customers where they are. THE BENEFITS OF TOKENIZATION There are obvious reasons we are seeing this shift to digital payments, including the speed and ease of use, which are convenient for both the customer and merchants. One reason that’s less apparent to the end user but critical for the industry is the enhanced safety and soundness made possible by the underlying technology of tokenization. Tokenization protects sensitive data, such as a customer’s primary account number, by replacing it with a unique, random string of characters that has no meaningful value. This nonsensitive data is generated by a nonreversible algorithm called a token. The nonreversible property of the algorithm prevents converting token numbers back to the original data. Instead, tokens are generated and stored with mapping to the credit card number in a secure and centralized system called a token vault. The real data in the vault is secured, often via encryption. Tokens are restricted in usage to a specific device, merchant, transaction type, or channel. Payment processing is one of the most widespread uses of tokenization today. Tokenization allows customers to securely store their credit card information in mobile wallets, point-of-sale terminals, and e-commerce sites so the card can be charged multiple times without ever exposing the credit card information. Consumers already are leveraging a range of payments methods that use tokens. While the end user is likely unaware of the tokenization technology making frictionless transactions possible, our goal is to derive value from the customer experience we provide. Card-on-file tokenization provides an additional layer of convenience for customers. Their payment details can be instantly refreshed and are immediately ready for use when a new card is required, whether the original is lost, stolen, or expired. Customers always have access to valid credentials and don’t need to wait for a new card to arrive in the mail. This removes the hassle of logging in and updating account details or missing out on a subscription- based service because of an expired card. Tokenization also is an increasingly popular way to prevent credit card fraud. There’s an inherent risk of targeted data breaches for merchants that process and store credit card numbers. Replacing the credit card numbers with tokens is a cost-effective way to mitigate this risk by safeguarding sensitive information. By reducing the risk of fraud related to digital payments, tokenization makes online checkout, mobile contactless payments, and in-app purchases more secure. The widely used single-pay token system prevents data from being used if it’s stolen. This technology works with an increasing number of point-of-sale systems used today.