MasterCard Sees Revenue Opportunities In Tokenization

If the payments industry learned anything from the recent major card-data breaches at Target, Neiman Marcus and other retailers, it’s the vulnerability of card and personal data left unprotected. As a result, more emphasis is being placed today on the use of tokenization and other measures to protect card data.

Such measures not only will help bolster payments security, but they also create new revenue opportunities for networks and other processors. MasterCard, for example, anticipates additional revenue from offering tokenization services to customers, Mario Shiliashki, MasterCard senior vice president of emerging payments, commented during a June 11 presentation at the Credit Suisse Future of Payments & Commerce Conference.

Later this year, Shiliashki said, the card network will launch the MasterCard Digital Enablement System, which it will offer to issuers and other parties in its network to tokenize and digitize their card payments on their behalf. “If they choose to [adopt tokenization] through us, then, of course, that’s a revenue opportunity there,” he said. “But generally, again, driving more transactions through the network that are much safer will, I think, be the main driver of the yield there.”

Tokens serve as a surrogate to replace the actual 16-digit card number stored in a database. Without the token and the key needed to open, crooks can’t use the information to transact. And the keys are kept in highly secure locations away from where transactional data are stored.

“That then allows us to not just have better security for it, but also allows us to segment and block transactions that are away from a particular device or particular environment,” Shiliashki said.

Shiliashki also noted that having additional data going through the MasterCard network also provides revenue opportunities.

“Fraud-prevention and detection solutions [represent] one of the things that, of course, we have an interest in and have very good assets in. That said, I think, again, the No. 1 priority right now is increasing the integrity, safety, and security of the network overall and the entire experience, end to end,” he said. “If we can then sell additional services on top of that, that of course is great, and we focus on that all the time. But that’s not the primary driver of this.”

Shiliashki opened his presentation by citing the transition now underway from physical to digital, where people are transacting differently from just a few years ago.

“What we see is a new set of transactions that are happening that don’t necessarily fit within the constructs of even five or 10 years ago,” he said. “If you think about how we transact, but beyond the transaction – how we talk to each other, how we connect with merchants, how we travel, how we check into this hotel, how we check in at the airport – all these experiences are very different today than they were even a short five years ago.”

Among the various other topics Shiliashki addressed during his presentation involved MasterPass rollouts, growing use of the automated clearinghouse (ACH) networks as an alternative to card-based payments, and Host Card Emulation (HCE).

PayPass

MasterPass, MasterCard’s digital platform for wallet services, is available in eight markets and is usable at some 40,000 merchants across those markets, Shiliashki said. “We have a pipeline of many additional markets and many additional merchants,” he said. “Ultimately, the goal is to be everywhere MasterCard is, and our goal of about 75 percent of all of the GDV coverage to be in the next couple of years.”

Later this summer, MasterCard plans to add the ability to embed MasterPass in-app, enabling customers to browse or do commerce through apps and not browsers, Shiliashki said. “Over 80 percent of all browsing on mobile devices is in apps and not mobile browsers, he said. “So the ability to embed our products, and particularly MasterPass, in-app is one key for us.

ACH

Asked about the impact use of ACH systems to bypass network-based card payments, Shiliashki cited PayPal as one of the chief players that has adopted ACH and driven it into the market. Noting comScore data showing a steady 20 percent of PayPal transactions going through as ACH, Shiliashki  said cards continue to be used for the overall majority of PayPal’s transactions.

Among the chief reasons for cards’ continue popularity are the functional benefits, such as immediate authorizations, and consumer preference, Shiliashki said.

“ACH … was built for infrequent, large payments, which is why it’s a batch process system,” Shiliashki noted. “It happens daily or, in some cases, much less frequently, especially if you’re crossing over a weekend.” That relatively slow speed, he said, doesn’t fit with consumers’ expectation for speed in today’s highly digitized society.

HCE

Shiliashki noted that MasterCard tries to remain neutral on specific technologies used to support mobile payments. But he said the network sees some benefits in HCE, where Near Field Communication-based contactless payments are supported through the cloud instead of through a secure element in the phone.

“We think it will drive greater adoption of contactless payments in the market, but what we’d like to drive is the solutions that make sense for the particular situation, environment, or mode that you and the merchant are trying to transact in,” he said. “And we don’t think that there is one single solution that goes across every device, every situation, every environment. There are times when the cloud simply isn’t available, and it’s better to have something on the phone that is stored on the phone in a secure way.”