DES MOINES, Iowa (2/3/15)--A new white paper from The Members Group explores how tokenization could tag-team with EMV to reduce card fraud with minimal impact to card holders.
Tokenization and EMV are similar in that they both use new payment technology to prevent fraudsters from either accessing or replicating vulnerable mag-stripe data. Unlike the EMV chip, however, tokenization is invisible to the cardholder.
In the digital payments realm, tokenization replaces all the coveted card account data that's being hacked and sold on the black market with secure digital tokens. These tokens have absolutely no value to thieves. That's because only the major card networks who provision the tokens are capable of decrypting them.
As with EMV, the decision to enable a credit or debit card portfolio for tokenization resides with the issuer. It is not a requirement, and the card brands have not issued any mandates. However, the TMG anticipates Visa, MasterCard and potentially others to take a similar stance on tokenization as they have with EMV, namely with the establishment of liability shifts or similar incentives.
The Credit Union National Association also believes that a layered approach to improving payments security is needed for all entities. Such a system should consist of chip cards, tokenization and encryption--where payment data is encrypted in a secure terminal, transmitted through an internal or external network and decrypted in a secure environment. CUNA also strongly advocates improved data security standards for merchants, aligning them with the higher standards that apply to credit unions and other financial institutions.
The concept of tokenization has been around for decades. In fact, many employees know it well in the physical world. Key fobs issued for remote access to private company networks (VPNs) are one of the first true applications of tokenization.
TMG also anticipates a change to interchange rates. Because issuers are expected to receive a fraud mitigation benefit, TMG expects the card brands to adjust interchange rates accordingly. Likely the interchange rate for tokenized transaction will fall somewhere between today's card-present and card-not-present rates. There may be additional impacts to revenue, as MasterCard has said it plans to charge "digital enablement fees" for the process of tokenizing a primary account number.
In the world of payments, the United States has often found itself lagging behind other countries. Take the innovation of chip cards, for example. Solidly in place in Europe since 1992, EMV is only just beginning to take hold in the United States. The same can be said about mobile payments.
With tokenization, on the other hand, the United States is poised to be a leader in payments innovation, dramatically changing the digital payment landscape forever, TMG said. Moving swiftly in response to EMV-related fraud trends, Visa, MasterCard and Apple have set the tone for global protection of consumers.