As Apple Pay prepares to give the first ever test of the tokenization approach crafted by Visa, MasterCard and American Express, Visa is pondering how it's NFC tokenized mobile payment approach will change the world of payments. On Tuesday (Sept. 23), Bill Gajda, Visa's head of mobile whose official title is global head of strategic partnerships, met with industry analysts to discuss his vision for where payments is headed.
Apple Pay transactions are eligible for lower interchange rates, given Apple's approach to security and authentication, including using biometrics, a tokenized Device Account Number stored in the chip and geolocation to help with authentication. But Gajda said that Visa is anticipating many more levels of charges, based on different levels of security deployed. "This kind of blurs this notion of card present, card not present, point of sale, not point of sale. I think tokenization allows us to accommodate kind of the evolution of those solutions. And so we’ll just stop talking about card present, card not present, the point of sale, not point of sale," he said. "Technically, we’re stuck in the world of card present and card not present. But there is a big effort inside Visa to look at this notion of say a mobile authenticated transaction. And it may not be a card present rate. There may be a series of rates depending on how many factors of authentication you use. We know that in the medium term, card present, card not present, just isn’t going to work in terms of describing these transactions. And so it’s going to take a while because you've got to get it right. But the discussion in Visa is ongoing."
Gajda, understandably, said he sees huge changes, but that he still envisions Visa to be comfortably at the center for the longterm. "The very large issuers are developing their own token vaults. And so they will have that database that translates a PAN to a token, but all of that information is sent to Visa to our token vault and mirrored there because we have to provide that token service and do that translation when a transaction occurs," he said. "So, I think for a handful of banks, they will have their own token vault and do that translation, but for the vast majority of banks, they will use both our token vault and our token service."
Some of the other highlights from Gajda's conversation:
Will Mobile Reduce The Use Of Cash, Checks?
"I do think that Apple Pay and Host Card Emulation solutions generally will displace cash and checks. I mean, they will be used for all kinds of transactions, but if you think about it, the situations where you have your phone and don’t have your wallet, a lot of those are going to be those small transactions, that cup of coffee, that quick service restaurant, that quick dive into the drug store to pick up something. And a lot of those transactions today are still cash transactions, not check transaction, but the cash transactions. And so I see this ease-of-use thumbprint pay to displace over time a lot of that but a long tail of cash transactions still exists."
Visa's Take On MCX?
The retail group MCX—which was started by Walmart and includes Target among its retailer owners—will have logistical problems with the implementation it has announced for next year, Gajda said. " MCX, a group of companies, many of whom naturally compete, these consortiums are very, very difficult. So we have to wait and see in terms of how cohesive that consortium is. Are they all really going to say, if they see Apple Pay or HCE takeoff, are they all going to remain outside the NFC group? I’d also say that the customer proposition, if they are talking about a new funding source and example, what is the value proposition for new funding source that can be used at some merchants or not others and how you are really going to know when you are walk into one or the another? What’s that branding exercise look like that this big box store is an MCX merchant and the one across the street isn’t and I have got to have this funding source. I just think it’s hard. I’m not sure what the customer value proposition is over the simplicity of existing plastic, the increased simplicity of tapping your phone. I don’t know what it is."
Leveraging Data, To Fuel Loyalty And Digital Coupons
Data "is where the money is. And so in terms of Visa’s data assets, I think we are uniquely situated because of our large card base. So, Visa, you could consider Visa a segment as an example because this is a pretty large sample of the population. But we also have both real time and historic data on every offline transaction. And that offline data is extremely valuable. I will use the Google example. Google didn’t get into payments because they like payments. Google hates payments. I think four sets of executives have departed Google because they haven’t quite sorted out payments. They don’t like it. There are in payments. They spent a lot of money on payments because they want the data. They want the data to support their underlying business, which is search and advertising.
"And so we know that is this asset, the ability to look at a transaction in real time and to understand where that consumer is, that they’ve started a commerce experience, to know where the merchants are in proximity to that and deliver a real time offer to that consumer that’s relevant based on where they are, what they are doing and where they’ve shopped in the past. We can do that today and we’ve demonstrated that. So we can do it. It’s important for Visa, whatever we do with our data assets is to get it right because of the trust model, because of the brand, because of our relationships with issuers. We have to get it right. We’ve actually formed recently kind of a new data team and we are looking at exactly how far Visa should go in that value chain to make offers or advertising more targeted, more timely, more relevant. I think that that discussion is ongoing. But there is no question that the value of our data, real time and historic offers kind of a unique proposition to merchants as they try to get closer to the customers and add value to the purchases and we know we can be a part of it and we’ve got to decide what we are going to do."
But, he said, Visa also has to be sensitive to retail competitive issues. "We would never expose another merchants’ volumes or data in aggregate level to another merchant. That’s clearly a line we are not going to cross," he said. "Our network has the capability to capture SKU-level data and add that to the series of data and analytics services we can provide. We haven’t launched our program with the merchant yet based on SKU-level data, and obviously you would have to have an individual agreement with that merchant to capture that SKU-level data. But our network has that capability."
He explored how to leverage what retailers already have and to move it forward. Many retailers "have databases of loyalty programs. The challenge they have is those merchants don’t know the customers are in their store until they are about to checkout and then it’s too late. And there are solutions that merchants are looking at, whether it’s low-energy Bluetooth, RFID tags." He then cited a pilot Visa is running with apparel retailer The Gap.
"I’ll just describe how it will be different than traditional because GAP has an existing loyalty program, a very large database of people who have given their information to the GAP. We’re able to develop a program with the GAP. And so when someone swipes their card, or in the future tap their iPhone at a Starbucks as part of their shopping, at the start of the shopping experience, we saw the transaction in realtime. We knew where the two or three GAP stores in the vicinity were. We had the historic GAP spend over the past five years and we’re able to deliver a realtime offer before they got their coffee, one that was relevant to them. And by relevant, I mean, if they shop at the GAP every week and we know that, we would just remind them that the GAP is around the corner.
"If they haven’t shopped at the GAP in three months, then the GAP would say, give them the 30 percent off offer. If they haven’t shopped at the GAP in six months, they will go, it’s a 40 percent off offer. And so this is because of the real time but also the historic nature of our network. We’re able to -- at a relevant point in time, before they’ve already gone to the GAP and are now at the checkout, to say here is a time sensitive, location sensitive, extremely relevant offer given your shopping history with the GAP and the GAP found this capability really, really beneficial to them. So that would be one example of how we can change what the merchant already has in terms of the loyalty program. We take that loyalty program database and add new capabilities to it."
"I would say in-app payments and all of the ways you think about them are going to be a huge driver in terms of digital commerce. I think we are going to see it obviously with Apple Pay, but if you look at a lot of these solutions that are out there that are transforming the point of sale. Most aren’t just changing the point of sales or mobile point of sale or changing this big register to the small digital configuration register. They are just saying 'We don’t need a physical checkout. We just need to know you are in the store.' You can pay in-app and walk out. And so we think in-app payments is going to be a huge development. As a result, we are going to be launching early in 2015 the first iteration of our developer center where we are going to expose a fairly large number of APIs and SDKs for the first time. So the third-party developers and even our internal developers can drive innovation not just for in-app payments. But so you will see certainly our PayWave exposed. You will see elements of Visa Checkout exposed. You will see Authorize.Net and some of our merchant-oriented assets exposed."
Is It A Separate Token Per Device Or Is It The Same Token?
" It’s a separate token per device and over time it could be a token bound to an app, as well as the token that’s bound to the device and that’s one of the benefits. So we can, as part our expanding the messages that we send to the network as part of tokenization, part of that message is okay, this token is only for the iPhone 6 and if it’s not being used with that phone number that’s tied to this iPhone 6, we decline the transaction or we clear the transaction," he said. "And so, I think it can’t be bound to an app, but it could be down bound to a service. It could be bound to a token or bound to a device and all of those tokens will be unique to that device or that application. So you’ll have one account, my Visa real plastic card that could have five or six or over time more than that—tokens--related to it."
Using A Car To Make Payments?
"Visa could put the Token into a car, authenticated using the VIN, the vehicle identification number, which is unique and then we could use low energy Bluetooth to pay with your car at a quick service restaurant or gas station or parking meter. We are able to do it because of tokens. We can think about it and using the low energy Bluetooth into that last three meters because of tokenization. You’re going to see much more innovative thinking and flexibility from the issuers in the networks because of these tokens. And so you will see tokens in a head unit of a car. You will see tokens for in-app payments. You will see tokens powering our QR-based solutions. Token is a center of our HCE specification. And so I think it’s a bit of a game changer."
The Economics Of Using Dynamic Interactive Tokens?
"Fundamentally, I think the value--the overall net worth value--remains the same. The transaction with the token using Apple Pay is exactly the same network transaction we have today. If there is extra value created, this shifts the economics or adds the economics because extra value is going to be created. Can I see a world where mobile network operators move from SIM rental to Identity Management and you pay a monthly surcharge to manage all of your credentials on some kind of hardware, software basics or element in that easy access to them and configurability and tied to biometrics? Can I imagine mobile operators thinking about it? Absolutely.
Do I think there are ways to extend the advertising and royalty model for issuers, for merchants, for networks, for other third parties and add value? Absolutely. So I would say that the core network economics remain the same and because of tokenization, because of the flexibility, because of all the ways these tokens can be used, that we will start to see after lot of discussion over many years real value-added services that people will actually be happy to pay for whether that is a merchant or for an issuer or a consumer."