Tokenisation has become an important component of enabling secure payments in Canada, and the payment networks are using it to extend their reach and control over the payments ecosystem, according to a new in-depth analysis by Technology Strategies International Inc. (TSI).
The report highlights the dominant roles currently being played by established payment networks, namely, Visa, Mastercard and to a lesser extent, Interac, and suggests that issuers, processors and merchants should look carefully at the impact that this will to have on their business since there are significant implications in terms of operations, marketing and compliance.
“There is no doubt that tokenisation can be a powerful tool in controlling fraud in Canadian (and other countries) retail payment transactions. However, merchants, processors and issuers need to fully understand the significant impacts it will have on their role in the Canadian payments ecosystem, and to plan accordingly,” explains Mike Vaselenak of VCS Technologies and the lead author and analyst for the Navigation Report.
“There are a number of additional opportunities that arise as a result of tokenisation, for example, leveraging it into new products and services, but by the same token there are significant threats of disintermediation.”
The report says that the benefits associated with tokenisation often tend to be strategic in nature. As a result, they tend to be longer term and in some cases are more difficult to quantify. The costs, on the other hand, tend to be operational and developmental, and therefore more immediate.
“The business case for tokenisation is complicated by fact that there is no clear and direct revenue stream from consumers to stakeholders in the payments ecosystem for adopting tokenized payments,” continues Christie Christelis, President of TSI and co-author of the report.
“Consumer awareness of what tokenisation is and what the benefits might be is, not surprisingly, largely non-existent and this is exacerbated by the fact that most consumers realise that, for the most part, they have zero liability for fraudulent use of their payment instruments.”
The report goes on to point out that the traditional four-party model for payments is being supplemented by additional services in a tokenised payments world, and describes a six-party model that is more representative of the new paradigm. This model provides opportunities for introducing additional services where new business models can be developed based on the careful design of tokenisation offerings that optimise the mix of in-house, payment scheme and third-party services.
“Stakeholders that are considering implementing or supporting tokenised transactions need to identify the true capabilities and shortcomings of tokenisation as it is currently being offered in Canada, and how those capabilities and shortcomings relate to their organisation’s business objectives,” Vaselenak explains. “Tokenisation of retail payments adds an additional level of complexity to the payments processes and the role of legacy payments stakeholders.”
Other key findings from the report include:
- Tokenisation technology is evolving rapidly, with payments tokenisation platforms pushing into non-payment credentials areas
- Tokenisation will help unlock new online payments options and stimulate secure online transaction growth
- Canadian banks are the best positioned to promote tokenisation