Why you should start tokenising
You might have heard about the tokenization trend. If not, you can read our previous article called What are tokens? So, let’s assume you already know what tokens are. But, you may be wondering how to start using them.
First of all, lets discuss the fact that tokens can be used by card issuers. To begin from the business need, if you are already issuing payment cards or are about to start issuing them, chances are that your cards are contactless as biggest payment schemes already mandate that newly issued cards must have this functionality. However, you are most likely considering how to allow customers to use their card without an actual, physical card. First of all, it helps to have a backup for the physical card. Furthermore, sending cards by mail can become an issue, even though most postal services in the developed world tend to be quick and reliable. The pandemic has shown that an increase in the number of parcels being shipped can make it hard to deliver payment cards on time. Outside of a pandemic scenario, there are also issues with on-time deliveries during the Christmas/Black Friday peaks. Or simple human error can lead to a car being delivered to the wrong mailbox. Challenges also arise when delivering cards abroad, even when your customer base is mostly concentrated locally. Let’s not forget that customers could be traveling all over the globe and they expect their payment card to work everywhere. Problems usually occur if they lose their payment card, or unfortunate cases when their card got stolen. At this point, they need a replacement and they expect to receive it immediately. Physically manufacturing (or personalization in cards terms) a card on one continent and sending it to another usually does not correlated well with speed or affordability. Tokenized cards could be a very good option. For example, you can allow your customer to download the “card” to their mobile phone. Also, tokenizing cards is not only applicable to niche cases. As more and more issuers offer some type of mobile wallet, having digitized cards becoming more like a norm rather than an innovation.
The technical challenge of making cards “digitized” is also not as big as it might seem. If you already are issuing payment cards, you most likely only need to run a project with your payment provider to enable this functionality. Without going into too many technical details for this article, what is required is a counterparty to link the original card and the tokenized card. In most cases, the payment providers themselves hold this information. For example, MasterCard calls it MDES service and VISA calls it VTS.
From the merchant point of view, the issuer side of tokenization is mostly related to the physical world and transactions where customers are present. For the acquirer side, tokenization is related more to online payments and e-commerce. If you are accepting payments online, you most likely know that adding any additional steps to the customer check out process decreases your conversion rate, which is, of course, harmful to your business. Therefore, due to customers’ need for simplicity and due to merchants that would like to increase their volumes of business, we see constant demand for simplifying the check out process. The most recent trend is having a one-click check out process. In essence, to enable your customers to check out without entering their card details each time, merchants needs to either store sensitive cards details within their systems, which is expensive and, most importantly, provides reputation risk if there is a data or IT breach. However, you could start tokenizing cards and only store information that would be useless in the event of a data breach.
The technical process of tokenizing cards from merchant perspective is quite similar to the card issuer side. In most cases, only cooperation with the payment are necessary, along with the resources to implement these changes internally.