Viewpoint: Harnessing the Full Power of Tokenization
By Hans Henrik Hoffmeyer, Nets
In the world of mobile payments, tokenization serves as the underlying technology enabling banks to secure mobile NFC payments using host card emulation (HCE). There’s no contesting that this is a big deal. The combination has triggered a profound shift in the mobile payments ecosystem, reducing deployment complexity and giving banks a commercially attractive route to market.
But if banks want to harness the true power of tokenization, they must first separate the two technologies in their minds. Tokenization is the enabling technology; it can be used to secure any kind of value transaction. Securing HCE-based NFC payments in Android mobile wallets is just one application. An important one, for sure, but only one.
This is an important distinction. Nets’ Nordic and Baltic territories consist of some of the most “digitally ready” markets in the world. The Nordics boasts 99 percent domestic broadband penetration, for example, and 69 percent of the population uses digital channels to access public services, including health care. This means that new digital products are adopted very quickly. Take mobile transactions, for example. These are growing at more than 90 percent every year and the region is attracting more than 1,000 new mobile payment users every day. In contrast, manually performed transactions are decreasing at a rate of 19 percent per year and, by 2020, Sweden-based Nordea Bank estimates that 60 percent of all transactions will be performed via mobile devices.
With populations as digitally advanced as this, banks and their digital payment partners, like Nets, need to look beyond the payment itself and consider how mobile wallet solutions can cater to wider applications and services if they’re to meet customer expectations and stay ahead of the curve. As a result, Nets, together with the more than 200 Nordic and Baltic banks we serve across these geographies, consider the mobile wallet to be far more than a mere payment instrument on a mobile device. To us, it is a facility where loyalty and other value-added services can interoperate, and a host of additional services can reside, including digital identity, mobile banking and, of course, payments.
Nets connects more than 300,000 merchants with Nordic and Baltic banks, putting us in a great position to support both sides of the payment transaction. As a result, our customers already are talking to us about providing the full-stack mobile wallet solution, as a single, fully outsourced white-label managed service, including:
- The tokenization service that secures the bank’s underlying transaction infrastructure.
- The catalogue of integrated service options that tokenization can be enable, like the integration of digital receipts, customer profiling analytics, HCE-NFC security, and the capability to securely integrate with merchant-linked value added services such as loyalty.
- The provision of (or integration with) the bank’s chosen end-user interface. This could be a bespoke “bank-pay” mobile wallet application or participation in an OEM-Pay solution, like Apple Pay.
- Access to merchant-linked value added services, via the Nets payment network, on a platform that enables them to integrate quickly and develop combinations of loyalty offers in accordance with the customer’s specific appetites.
Based on this model, which is all enabled and powered by tokenization, the future integration of other smart devices and wearables into the mobile wallet ecosystem becomes imminently feasible. Other concepts also could be introduced, like smart tokenization, where conditions can be built into the payment token to establish specific circumstances for validation, opening up a whole new realm of digital possibilities.
But before all of this, banks need to appreciate what tokenization can enable today. This process begins with a conceptual shift in the minds of banks; tokenization needs to be decoupled from HCE. Once this has been achieved, the real potential of this amazing technology can begin to sink in.
Hans Henrik Hoffmeyer is a senior vice president at payment services provider Nets, where he has overall responsibility for mobile services. With a background in information technology, corporate finance and accounting, Hoffmeyer joined Nets in 2015 and has previously held positions at Oracle, IBM and in a number of mobile companies and start-ups. He can be reached via email@example.com.
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.