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Visa bolsters tokenization to calm security concerns around mobile payments

With recent surveys showing that security concerns are one of the biggest holdups in mobile payments adoption, Visa is hoping a soon-to-be released tokenization service will resonate with both consumers and merchants.

Visa previously got behind standardizing tokenization – which replaces a credit card’s 16-digit account number for mobile payments with a stand-in called a token. Now the company is readying the release of a tokenization service in September that will enable tokens to be stored directly in mobile devices as well as Web-based and cloud-based applications, a move it hopes will spur new commerce experiences.

“This is Visa’s roadmap to support clients in making the shift from plastic-enabled commerce to digital-enabled commerce,” said Jim McCarthy, senior vice president of innovation and strategic partnerships at Visa.

“Through Visa Digital Solutions, Visa is enabling existing clients and new partners to create new, innovative commerce experiences that take advantage of Visa’s secure, global payment platforms and capabilities,” he said

“Digital Solutions have the potential reduce fraud in online payments by introducing a service that replaces the 16-digit payment account number with a digital token. From tablets to phones, appliances and wearables – Visa will support new payment methods that make it possible for consumers to wave-, scan- and click-to-pay.”

The unknown
In October 2013, Visa, MasterCard and American Express introduced a new standard for digital payments to enhance the security and simplify the consumer purchasing experience when shopping on a mobile phone, tablet, personal computer or other smart device.

The new standard allows for the traditional 16-digit primary account numbe to be replaced with a digital “token” for online purchases and transactions initiated with mobile devices. By removing sensitive account information, the companies hope to provide a more secure way for the industry to enable online and mobile payments.

Security is one of the main reasons for a low mobile payments usage rate, according to a recent study from Thrive Analytics, which found that security concerns were named by 46 percent of consumers for why they do not use mobile payments compared with 37 percent who said that it is easier to pay with cash (see story).

The findings are echoed a recent PayPal survey, which found consumers continue to resist mobile payments as concerns over data security loom large in ecommerce transactions (see story).

“Consumer concerns around mobile payments has little to do with any specific issue, and more to do with the general fear of the unknown,” said Drew Sievers, former CEO at mFoundry and now founding partner at fintech investor Operative Capital. “Mobile banking had similar associated fears early on, but now there are over 100 million users of the technology.

“It comes down to ease of use, familiarity, a key benefit, and the belief that the system is safe or without significant risk,” he said.

“Tokenization makes cloud-based systems for mobile payments more viable, which will in-turn make deployment and adoption simpler. It has the ancillary benefit of facilitating transactions without sharing sensitive card information, which means better security for consumers.”

Tokens linked to lost or stolen mobile devices can be instantly reissued without changing account numbers or reissuing plastic cards, according to Visa.

Digital solutions
Visa is wrapping up tokenization in a new suite of offerings it is calling Visa Digital Solutions, that includes some already-available services enabling consumers to wave their phones over a contactless terminal, scan a QR code or click online to make a payment from a mobile device.

Visa, like many others, has been struggling to gain a foothold in mobile payments – where the potential is thought to be significant but adoption is progressing slowly.

Last week, the company announced that it is replacing its digital wallet with Visa Checkout, which stores credit-card information online so that e-payments can be made on participating merchants’ Web sites without entering anything other than a name and password (see story).

The move is a reflection of the fact that had not caught on.

Just 2 percent of consumers have used, according to the Digital Wallet Usage Study from Thrive Analytics, compared to 79 percent for PayPal, 40 percent for Google Wallet and 17 percent for Apple’s Passbook.

“Mobile payments is still in its infancy and Visa’s Digital Solutions, alongside their support for a remote secure element in the cloud, will establish a secure standard early enough in the evolution of mobile payments to ensure a smooth integration,” said Nathalie Reinelt, an analyst at payments consulting firm Aite Group.

“Visa is smart to start here with tokenization, as it both solves a security concern and provides them with data on the effectiveness of their tokenization strategy, which they will be able to leverage for analytical insights when deploying it more broadly within the e-commerce space,” she said.

The new standard
Despite its early challenges in mobile payments, Visa continues to look for the kinds of innovations that will resonate with consumers and merchants.

For example, it is supporting new payments methods with Visa payWave, its contactless mobile payment technology for in-store purchases and Visa Checkout, for online purchases.

The company also recently published an initial specification for presenting Visa account information in the form of a QR code, enabling retailers to scan QR code on a smartphone screen to complete a payment.

“Tokenization will likely become the standard for all online and contactless transactions in the future,” Aite Group’s Ms. Reinelt said. “Visa’s involvement in tokenization is not new, they have long participated in EMVCo, a partnership between Visa, MasterCard, American Express, Discover, JCB, and UnionPay.

“EMVCo’s mission is to develop specifications and standards for secure transactions, and tokenization is a very important component of that mission,” she said. “Visa’s Digital Solutions will initially offer more security to mobile payments, but I fully expect to see this expand to e-commerce transactions as well.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York