If we have learned anything about payment technology over the past decade, it’s that there will always be a new technology or a new scheme that will be championed as a way to reduce the growing rise of payment card fraud. While we should be encouraged by progress on this front made by our payment industry cohorts, I believe the sheer size and complexity of the payment industry dictates that there will never be one silver bullet, one solution that will solve the payment security predicament we face.
One such example of this dilemma is the news about VISA’s newly launched tokenization effort, aptly called Visa Token Service, which aims to “offer consumers a broad range of simple digital payment options, while protecting their sensitive information from fraud.” While this is indeed a worthy goal, in practice, until harmonization is achieved, this may prove to be more aspirational than functional.
Simply put, data tokenization is a security process of replacing sensitive payment data (such as payment card details) with a non-sensitive equivalent (a token or “identifier”) that has no value in and of itself other than to link back to the sensitive data through a tokenization system. This system will work to replace the sensitive payment information found on payment cards (physical or virtual) with a "token," the rationale being that because tokens do not carry a consumer's payment account details (such as the 16-digit PAN -- permanent account number) they can be safely stored by online merchants or on mobile devices for e-commerce and mobile payments.
Because a primary objective of tokenization is to eliminate the need for sensitive payment card data stored at the merchant side, it can certainly make a very positive impact on one of the most pressing aspects of cybercrime: the ability of fraudsters to steal card data from merchants, as they have from Target and other retailers over the past year, including the newest victim, Home Depot. This can only be a good thing and is absolutely a step in the right direction. In effect, however, tokenization shifts the data risk to the processor/tokenization provider, as the card data still needs to be stored and held for merchant payment purposes (matching of token with card data) at settlement.
As an advocate for strong payment authentication and transaction verification, I support any security technology that can help protect the consumer from payment card fraud. While tokenization is definitely a worthy and solid step forward by reducing sensitive payment data proliferation, there's a number of issues that must be considered:
- Tokenization systems themselves become attractive targets for fraudsters, and the traditional security measures that the industry relies upon are inadequate to keep the hackers at bay.
- As it stands now, a lack of standards, certifications, and security best-practices mean that there will be many custom-built implementations, which will result in fragmentation that will cost the industry much for years to come.
- Token generating/processing will add additional cost to the processing of a transaction. This will likely be borne by the merchant but ultimately passed on to the consumer.
- Access to tokenization systems will typically require real-time access. Such tokenization systems will be centralized or stored within the cloud, which raises concerns about security, resilience, latency, and cost.
- Tokenization doesn’t address the card skimming/cloning problem (it is not an alternative to EMV).
- Tokenization doesn’t add any additional validation to the transaction over and above what is already in place today.
Clearly, to effectively address these and all future challenges, we need more coordination among all of the industry stakeholders. That is why I am encouraged by the actions of the Federal Reserve Bank of Boston Mobile Payments Industry Workgroup (MPIW), which recently formed a workgroup to tackle such issues.
In my view, the war against cybercrime and payment fraud will not be won with any single solution, but instead, only through industry collaboration and multiple layers of protection and verification that are employed through every step of transaction processing. True protection means layered defenses, all designed to frustrate and repel attackers.