Apple Pay

Visa and MasterCard Bank on Apple Pay Tokens

Analysts are bullish on the Visa and MasterCard’s financial prospects as a result of their support of Apple Pay in more ways than one.

Seeking Alpha analysts report that Apple’s embrace of a card network scheme to power Apple Pay will make it harder for them to be disintermediated from the mobile payments wave and the many new competitors in the space with alternative payments methods and rails.

But, perhaps more important, they believe, is Apple Pay’s support of tokenization which is how payments credentialing and authentication happens on the Apple Pay platform. Visa and MasterCard both announced their support of Apple Pay’s tokenization process and will make their platforms available to their issuers via an “on behalf of” capability for those issuers who can’t and chose not to manage the tokenization process themselves. While the largest banks in the country will likely want to manage this process themselves, it is unlikely that smaller banks will want to make the investment.

This service provides an entirely new revenue stream for the card networks. MasterCard has announced that it will charge $.025 per transaction. Visa has not yet announced its fee schedule.

Merchants and issuers are both supportive of the tokenization concept since it renders transaction data useless by encrypting it. The string of high profile breaches that has happened over the last 12 months has cast a bright light on the need for better methods of protecting cardholder data at the merchant’s point of sale. Apple Pay’s tokenization process initiates a one-time token each time a transaction is initiated or requested by a merchant. That token is linked to a tokenized device account number which represents a cardholder’s personal account number or PAN and stored on the secure element on a consumer’s iPhone 6.

Analysts estimate that the cost of fraud is the US is nearly $200 billion, which is the direct result of cardholder data being stolen and used to buy merchandise using those stolen credentials. That is exclusive of the $10 billion that is estimated that banks, in particular, have to spend to replace stolen cards and to support calls in their customer service centers.  Reputational risks can also run into the hundreds of millions of dollars.


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