Tokenisation is key to tackling threat of payment challengers
The vast majority of payments worldwide are still made in cash. But if mobile were to combine e-commerce with proximity payment, that could be a problem for banks. One potential solution is tokenisation.
“The banks are nowhere near e-commerce,” said Jean Claude Deturche, senior vice president of mobile financial services at SIM card manufacturer and mobile security company Gemalto, speaking at the HPS PowerCard 2015 conference in Marrakesh. “In China, AliPay dominates 80% of e-commerce business, and there is no bank involved. That is a wake-up call to the whole industry. Banks have always struggled with e-commerce. They only own 30% of the space. Now if that happens in proximity payment, which is a market 10 times bigger, then the banks are going to have a problem.”
According to statistics provided by Gemalto, the global retail market is worth around $30 trillion, of which around one-third is captured by debit and credit cards. In France 60% of volume is digitalised, as are around 90% of payments by value. In Kenya the volume is just 2%, while in Japan it’s 15%. In the USA its 45%, in Brazil it’s 15%, in Singapore it’s 60% and in Russia it’s 5%. In Australia 70% of adults have a contactless card.
But the rise of alternative businesses such as AliPay in China, which bypass the bank system in favour of collaboration between e-commerce businesses and mobile networks, could mean that banks miss out on digital payments revenues.
“E-commerce players and MNOs are blurring the lines of the digital payment world,” said Deturche. “We should not underestimate the potential for disruption via mobile, and the appetite for it. Most of the revenue has been moved away from the carriers – look at Apple Pay. They couldn’t compete in the value proposition of a brand like Apple to the end consumers. Brands like PayPal and Google should not be underestimated.”
While plenty of banks have already tried to fight back by launching mobile payment solutions around the world, these are sometimes held back by lack of consumer trust. A recent study in the UK found that nearly half of smartphone users do not want to use their device to make contactless payments, mostly because of fears about security. For this reason, Deturche believes that tokenisation is essential to make mobile payments viable – “no one will start without it,” he said.
Tokenisation involves replacing the primary account number and other sensitive data identifying a cardholder with alternative identifiers. The idea is to render the information worthless to any fraudster. Card brands including Visa, MasterCard and American Express have already stated their support for tokenisation as a way of cutting down on data breaches.
The advantage of tokenisation is that it eliminates the need for expensive core systems changes, since it can usually be ‘plugged in’. Gemalto has been working with HPS since January, on the basis that HPS’ network of 320 issuers and acquirers plus its payment software would be useful when combined with Gemalto’s mobile security abilities.
“Banks realise that they need to move with the times,” he added. “They are building propositions much more independently than they wer ein the recent past. With tokenisation, they can think about online commerce, e-payment and many other services, all bundled together, and not just stick to the linear products they were offering before.”