Mastercard CPO Calls for ‘Rethink’ of Payments Technology With Tokenization

Among the meteoric rise of payments innovation, tokenization’s widening adoption has been among the most notable.

It’s been around for more than a decade, but even today — with explosive growth — most financial executives probably don’t know as much as they should about what tokenization is, how it works or what it does.

Tokenization can potentially improve any use case where data exchange is the norm, Mastercard Chief Product Officer Jorn Lambert told PYMNTS TV. It can boost more than commerce, although the benefit to merchants, issuers and customers is most readily apparent.

“We’ve needed to rethink, from the ground up, how we architect security,” Lambert said.

In this hyperconnected world, as credentials are stored on billions of mobile devices and might be stored on millions of servers globally, “you have to assume that the bad actors and the hackers will get their hands on that data, no matter how tall and thick the firewalls you build,” he said.

At its heart, tokenization involves replacing sensitive information with a digital, surrogate and non-sensitive “token,” he said. That replacement foils the fraudsters because what they get their hands on proves useless.

There’s an analogy here. Think of the hotel keys of yore — actual keys with numbers on them — now replaced by electronic plastic wedges that can be deactivated when not in use.

A Decade in the Making

For Mastercard, tokenization’s genesis stretches back more than a decade, when the payments giant set about developing a credential that sat on physical cards. The company then extended the principle fully into the digital realm and onto mobile devices. It took three years to the first billion tokenized transactions — and now the company sees a billion tokenized transactions each week. Roughly 36% of the network’s eCommerce volume is tokenized. Getting to 100% is not far-fetched, considering that the 100% milestone has already been reached in India.

As for the positive ripple effects already accruing to the eCommerce ecosystem, banks are more likely to approve transactions; approval rates on transactions can get a boost of as much as 5%; and merchants see more top-line momentum. For consumers, the pain points of card replacement fall by the wayside because the tokens are dissociated from primary account numbers and are automatically updated, simultaneously, with any merchant where the tokens are kept on file.

Elsewhere, the concept of replacing sensitive data extends to Mastercard’s passkey service, which operates as a tokenization technology that replaces passwords with biometrics (like fingerprints or face scans) tied to a device to confirm a user’s identity. A passkey housed with an airline means that a user who wants to check their mileage or reward status does not need to type a password because the biometric is invoked.

“We have tokenized your biometrics for the purpose of payments too,” said Lambert, who added that “we will confirm with the issuer that this is a legitimate, authenticated transaction,” and that the person is who they say they are.

We’re only in the first wave of tokenization, where the service is helping drive growth in the gig economy, subscription economy and gaming economy.

We’re headed toward a future where tokenization provides consumers greater control over their data and how they want to work with enterprises, giving them the OK, for example, to share offers or insights, and even how consumers might be “scored” for a new line of credit, Lambert said. The tokenization of assets has been finding a wider berth with financial services companies, such as real estate (land titles or carbon credits), stocks and bonds, as the transactions are safer with tokenization than with any analog process.

Mastercard will be bringing tokenization to multiple new markets through the next few months and will see more initiatives with the tokenization of real-world assets.

“Tokenization is one of those products that sells itself,” Lambert said, “and for everybody in an ecosystem, there is a value proposition here.”