Retail Payments Tokenisation - Who are the Real Winners?


The retail payments tokenisation offerings by Visa, MasterCard and to a somewhat lesser extent by Interac, represent a significant expansion of their reach into traditional merchant, issuer and processor territory.

In my thirty plus years of developing, managing or advising on payments, I have come to look at developments in payments through the lens of payments stakeholder gains and losses of control. For each new development in payments technology or services, the key business question is: Which stakeholder categories extend their control over the payments ecosystem (and therefore a net gain in revenue), and which stakeholder categories lose some of their control of the payments ecosystem (and therefore a net gain in costs)? These stakeholder wins and losses determine the eventual success or failure of new payments technologies. An understanding of retail payments tokenisation on these terms, is needed by Issuer, Processor and Merchant stakeholders in order to develop their responses to tokenisation.

The four-party model for payments (Issuer, Acquirer or Processor, Merchant and Card or Account Holder) is so yesterday. The reality is that the payments ecosystem is a six-party model – that is, there are six payments stakeholder categories that exert a level of control and therefore can set rules and extract fees from the other stakeholders in the payments ecosystem. The additional players are the settlement networks or card schemes (‘Schemes’) that are taking an expanding role, and intermediary service providers who have inserted themselves between the other stakeholder categories. In tokenisation, such intermediary service providers include Token Service Providers (TSPs) that provision payment tokens, and Token Requestors that manage tokens. The Schemes’ play in retail payments tokenisation positions the Schemes for a significant expansion of their (relatively) recently adopted additional role as intermediary service providers.



There is only so much control and fee charging capability to go around in the payments ecosystem. So, if the Schemes are playing a bigger role in the payments ecosystem as a result of tokenisation, which stakeholder categories are playing a lesser role?  The Scheme’s approach to payment tokenisation is kinda ‘open’. Payments stakeholders can take their own approaches to tokenisation under Scheme rules. However, most Merchant and Issuer stakeholders will find it easier to engage the Schemes’ own tokenisation services, or some combination of Scheme and complementary third-party tokenisation specialty services. Processors in particular, will find it particularly difficult to compete with the Schemes in tokenisation services.

Kudos to the Schemes for finessing a threat from the leading mobile payments providers (lead by Apple Pay) to gain more control over mobile payments via their mobile wallets, by changing that threat into an expansion of the role of the Schemes in mobile payments via tokenisation. Issuers have the opportunity to extend their control of the PAN through tokenisation. Processors can use tokenisation as part of an enhanced value add to their Merchant clients. Merchants can leverage tokenisation for their online and mobile sales channels for certain target markets. All these upsides need to be compared against increased development and operations costs resulting from the proper implementation of tokenisation, that in fact will occur for Issuers, Processors, and Merchants. Further, Merchants, Processors and Issuers will all need to deal with the increased compliance overhead associated with tokenised retail payment transactions.

So, how has the power and control shifted to the Schemes? First, consider access to the business data of payments transactions. One or more tokens are substituted for the PAN, in any payment processes downstream from the TSP. The TSP now controls the historical data linkage (in their ‘data vaults’) between the account holder (which the Merchant likes to consider as their customer) and the method of payment. Second, consider compliance. Tokenisation has resulted in new Scheme rules, rules, and more rules. These rules, including token and TSP service specifications, represent additional Scheme standards to be met in order for transactions to qualify for Scheme settlement. Third, consider the abovementioned new abilities to charge fees. Tokenisation services by the Schemes is a vehicle for additional Scheme fees. Both MasterCard and Visa tabled tokenisation services fees which they in turn waived for an undefined period of time under certain conditions. Expect the Schemes to eventually leverage tokenisation into higher revenue.

Tokenisation of the PAN is a good idea, can significantly help (but not eliminate) fraudulent payments, and should have been done a long time ago. But Processors, Issuers and Merchants need to be very careful when making their decisions regarding their play in tokenisation.

Never underestimate the ability of the payments sector to complicate things, and tokenisation is no exception. The business case for tokenisation by payments ecosystem stakeholders is not straightforward, and is highly conditional. Issuers, Processors and Merchants need to look at tokenisation as both an opportunity and a threat in their product and strategic planning. Things to think about in such planning include: where emerging tokenisation technologies are going, the impact of tokenisation on Internet of Things, next generation payments products and services enabled by tokenisation, new business data generation and management needs resulting from tokenisation, role of tokenisation in remote and physical face to face payments, and the market value proposition of tokenisation to the end Account Holder or consumer.

This is all covered in the recently released report I authored with Technology Strategies International (TSI) ‘Retail Payments Tokenisation in Canada – The Paths to Success for Canadian Payments Stakeholders’. This Navigation Report provides a critical assessment of the real value, opportunities, shortcomings and implications of entering into a tokenization program. As a result, your organization is provided with essential guidance for your tokenisation business case, and recommendations for action by issuers, merchants and payment processors.

Click on the link below to access the recording of the webinar:
Retail Payments Tokenization in Canada - Who Wins and Who Pays?

For more details on this report please visit:


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