Blog / June 2, 2016

EMV, Tokenization and the Future of Payments

Your customers want transactions completed quickly and securely. That’s why the influx of digital payment options has many consumers looking for the next fastest alternative. And while they don’t always care how it works—you should. Here’s why.

As with any new payments technology, come questions about security. Tokenized digital payments—like those used by Apple Pay, Samsung Pay and Android Pay—are no different. Certainly, it’s more convenient, but can we trust this contactless method of payment?

Tokenization Starts with EMV

Understanding tokenization begins with EMV. On today’s chip-enabled EMV cards, the chip is a microprocessor that uses dynamic data to securely facilitate the transaction processing of a static card credential.

But, as anyone who has used a chip card knows, there is something still to be desired. The process of “dipping” the card is slow … you sit and wait … and then you wait some more. Eventually, the terminal buzzes so you don’t forget your card, and the process is complete.

That’s not to say that EMV isn’t worth doing. EMV is a critical component in the digitalization of payments because it introduced digital dynamic data during the transaction process, which improves payments processing and better protects consumer data for card-present transactions.

How Tokenization Works in Digital Wallets

Digital wallets take it a step further by adding tokenization to digital payments transaction processing. Tokenization works by replacing the static credential—the number on the front of a debit or credit card—with a token credential that is unknown, even to the cardholder.

For example, one of your bank’s customers is using Samsung Pay to buy a cup of coffee. When the barista asks for payment, the tokenized debit card in your customer’s digital wallet produces a stored token—or dynamic card credential—from the mobile device. That token is then passed onto the merchant in an encrypted way to complete the payment.

Once the merchant processes that transaction and contacts the card association (such as Visa or MasterCard), the card association accesses the “token vault” and uses your customer’s token credential to match it to the card credential and facilitate the payment. In the event of a merchant breach, the credentials that the merchant receives cannot be used to perpetrate fraud going forward.

Tokenization applies not only to card-present transactions—like EMV—but is also used to secure digital wallet payments in the ecommerce space. And, as if this wasn’t impressive enough, tokenization all happens in less than two-tenths of a second.

Beyond EMV: Embracing Mobile Payments

Mobile is the present and future of payments. With stats like those from eMarketer showing mobile payment transaction value increased by 137 percent from 2014 to 2015, and projections for another 324 percent increase from 2016 to 2018, it’s clear that more and more people are adopting smartphones. And that means more devices enable mobile payments—both for in-store and ecommerce purchases.

Soon, the question will no longer be, “do you have a smartphone?” It will become “what kind of smartphone do you have?” And your bank should be asking customers, how can we get you set up with a digital wallet.

EMV is just the beginning. By embracing tokenized digital payments, you are not only able to protect your lion’s share of interchange revenue, you provide customers who are looking for the newest technology with the fastest—and most secure—mobile payment method out there.

In his role, Matt Herren has employed advanced analytics and data analysis to not only react to fraud, but also to prevent it. As the product manager for Payment Analytics, Matt has expanded CSI’s ability to address fraud through early identification of merchant breaches and fraudulent testing techniques. His work helps to increase bank profitability through fraud mitigation and card portfolio analysis, allowing customers to realize industry-leading results and maximize program performance.

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