The American Express, MasterCard, and Visa Announcement for Tokenization and the Impact on Digital Payments

Navigator Edition: September 2013
By: Jeff Crawford

On October 1st, American Express, MasterCard, and Visa announced an agreement to cooperate in developing a joint standard for payment tokenization for digital payment transactions. The parties stated that their intent is to both enhance the security of these payments, and increase the ease of digital purchases by eliminating the use of the payment account number. This announcement is significant for a several reasons: 1) the three major payment networks are working together; 2) the companies agree that most payments growth is coming from the digital channel; and, 3) no one party (including these players) has successfully balanced enhanced security with ease of purchase. It does not, however, imply that an individual strategy from these players (or others) will not be successful. Rather, it means that Visa, MasterCard and American Express recognized that a common standard will help all payments participants. In fact, First Annapolis expects that these companies and others will continue to compete vigorously in digital payments with their own unique solutions.

In the short term, this announcement will likely have a limited impact on the “wallet wars,” primarily because so many questions remain unanswered. Specifically, the wallet providers such as PayPal, Google Wallet, and MCX, along with merchants and card issuers, will need to understand how this tokenization will affect existing payment acceptance and verification along with other implementation considerations. The announcement does not preclude these wallet providers from continued development of various wallet design and payment system variations in the short term. In the long term, however, they will need to consider how to integrate with these tokens, in whatever form they evolve. Additionally, variation in how these tokens are used in the digital channels vs. at the physical point of sale will add another layer of complexity.

If this tokenization standard effort is successful, and the networks develop an effective solution, it will help the industry address the interoperability and acceptance standards that are now lacking for wide-spread mobile payments. A single standard will make mobile payments more broadly accessible for merchants and issuers. However, multiple challenges and questions still need to be addressed including what form will the actual token take (e.g., QR code, biometric stamp, PIN, log-in username, etc.), which party will secure the token, and is this a mechanism for physical point of sale payments? Perhaps more importantly, will be addressing the still-evolving business model around mobile. Finally, competitive considerations (time to market, exclusive access), ensuring adoption from key payment value chain constitutions (merchant and issuers), and easing consumer use (striking balance between easy and effective) will be critical to the long term success of a jointly-developed payment tokenization standard.

We view this announcement as a positive development for the payments industry as a whole; cooperation for a solution that will be interoperable for all payments parties is a step in the right direction for digital payments.

For more information, please contact Jeff Crawford, Senior Consultant specializing in Mobile / Alternative Payments,

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