One of the hottest developments of recent weeks is the introduction of tokenization as a means to increase security and reduce fraud. After years of speculation, followed by collaboration, and finally announcement along with Apple Pay, tokenization is now finally here. However, despite the excitement, the details on the initiative are less than clear. Many questions still remain unanswered even amongst the insiders & experts; in fact, we will try to answer these questions and more on Let's Talk Payments in the weeks to come as additional information becomes available. Here's the Top 10 things strategic and implementation questions we will try address:
1. What is the primary purpose of tokenization? Whose interests does it serve?
While the stated purpose is clear, what's unclear is whether this is yet another attempt by the majors to consolidate their position.
2. Does tokenization eliminate the need for CNP category of transactions?
CNP has been a bone of contention in the interchange discussion, and is widely seen as an archaic remnant of plastic-centric thinking.
3. Exactly what benefits does it provide to the various parties involved? Merchants, processors, issuers, payment networks, acquirers, etc.?
Does the value equation change as a result?
4. Who are the biggest beneficiaries of the currently proposed tokenization regime?
We think it is the 3 payment networks, but perhaps the largest issuers too?
5. Who are biggest losers as a result of the proposed tokenization approach?
We think it is merchants and those looking to disrupt the status quo in payments.
6. Does tokenization foster or impede innovation in payments?
Does it fact perpetuate the status quo?
7. Exactly who can become a TSP (Token Service Provider) and when?
Are the protocols set up for entities other than the 3 major networks to provide this service?
8. Is the Apple Pay implementation of tokenization compliant with any industry standard or is it totally proprietary?
Does that approach help or hurt the cause?
9. Does tokenization (as proposed and implemented) take the industry a step forward or backward?
We believe the jury is still out until the implementation and roll-out details are understood.
10. Wait, did someone say this is an innovation?
Just asking, we are not sure yet!
We wrote a lot about tokenization
in 2013 highlighting its importance.
Please share your views about Tokenization with us. We will feature any informative material shared with us to answer the above questions. You can Contact us using this form or write to us using our email id on that page.