I’ve been writing about this token stuff for over 5 yrs. Wow.. This is an update to my June 2013 blog – Tokens: any volunteers , SRC- W3C and Tokens and the Trojan Horse.
First my bias.. I may be naive.. but as I stated in Tokens and the Trojan Horse
Visa and Mastercard provide a level playing field for Issuers and Merchants (with few exceptions). Per my blog Payments Civil War, V/MA are a fantastic creation that have experienced profound success (and growth). As I outlined in the Changing Economics of Payments, the beauty of the V/MA model is that it creates incentives for millions of businesses to invest billions of dollars. For investors, the attraction of V/MA is that it is scale free.. with minimal effort required to add volume. While there are MANY more logical ways to deliver payments.. there are none with more profitable incentives for investment.
Tokens are an enormously powerful control point for the payment networks. 9 years ago the banks were working to “build a new Visa” within an initiative launched by The Clearing House. The idea was to create a new scheme that “wrapped” account numbers with another number (token) and avoid network routing (see wrapping). The networks smartly came down and issued clear guidance, if you wrap my card number with another number …. It is still a Mastercard/Visa.
TCH has been seeking a partner for tokenization since Paul Gallant led the 27 bank consortium 8 yrs ago. Can you imagine the sales pitch (as I reviewed in the Trojan horse) “give me all of your customer information, I will lock it up.. and give you one of my keys for you to access it”. Google, Apple and Amazon have all smartly said no. What is the remaining “big” eCommerce Cards on File (COF) home? You guessed it PayPal.
While I’m not 100% sure about this.. it is the only group left AND two of these banks told me this week “Paypal is the only one that can move merchants effectively”. I was shocked … paypal can move merchants more than Google? They responded “Google has the best technology, but they just can’t sell merchant more than adwords”.. wow.
Thus my best guess is that 2 of the top banks are working with Paypal as the processor/gateway to move “W3C” in the direction of the TCH tokenization service. The head of the W3C WG wrote me on twitter
Quite frankly my head is spinning. W3C is a browser standard.. how can Paypal get their TCH tokens in? I haven’t figured this out yet, but what I do know is that the complexity is enormous. We have 3 different token services
- Visa VTS/MA MDES (Apple is primary customer)
- Google (see Blog) – had no choice but to develop a new custom “standard” by which the encrypted FPAN flows to the merchant acquirer
- TCH – Paypal + ??
And also multiple new eCom standards
- W3C – Payments Work Group. With Google, Microsoft, and about every tech company
- EMVCO – SRC (see Blog)
- Proprietary (APple Pay, Amazon Pay, Paypal, Cybersource, …etc)
To read what is happening you must therefore take a matrix view. Obviously Google is moving with their own token service and W3C. Paypal seems to be moving with TCH and W3C. Apple with network tokenization and ApplePay.
My head is spinning. I must say I did buy Paypal stock this week. I’m just floored that top tier issuers are innovating with Paypal.. focus, partnerships and execution are moving them into the bank friendly category.