What Is Tokenization?

Every day more and more people are using digital devices to pay for products and services they buy online.  In fact, some experts predict that digital payments could represent 20-30% of all consumer payments by 2020.  This includes purchases of goods and services as well as utility bills, car payments and yes, even credit card payments.

The concept of using digital devices such as laptops, tablets and Smartphones has been around for awhile.  But, we are now moving into other devices that include wearable devices such as the Apple Watch.  Even things like refrigerators are becoming equipped to become a payment device.

Linking these devices and other household devices such as Alexa is the digitization and “tokenization” of credit card credentials.  Mastercard was the first to launch a secure “tokenization” system called MDES.  Since then more than 700 credit card issuers have become connected to MDES to provide innovative and secure ways to pass credit card information such as the numbers along the electronic highway across all channels and devices.  It is redefining the way credit card transactions are completed on a global level.

In 2016, Mastercard started to tokenize Mastercard credit card credentials into a wallet system called Masterpass.  The credit card credentials such as the number, expiration, security codes and billing address are safely stored on a smartphone, tablet or PC for quick use by accepting merchants.  The system can be incorporated into in-store readers, online website shopping carts as well as mobile apps.

While Mastercard designed Masterpass to safely tokenize their Mastercard-branded cards, they built the system so that other cards such as Visa could also be stored within the wallet system.  This allows consumers to continue to have a choice of credit cards to use for purchases, just as they would with a traditional wallet.  Visa offers their own brand of tokenization called Visa Checkout and it is also capable of storing Mastercard credit card credentials in a reciprocal manner.

In order to speed up the adoption of the token system of exchange or use of an electronic wallet, merchants and banks are being encouraged to embrace and adopt the new way of doing business and replace the need for every sale to require a manually entered credit card number, expiration, billing address and other information used in fraud detection.

By allowing each network’s respective wallet service to leverage the token solutions of the other network, this agreement will ensure that each network’s wallet solutions can continue to stay open – and can add the extra security of using tokens in place of real card numbers being exposed anywhere.