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With eCommerce on the rise, tokenization is the ticket to taming fraud

Digital payments were on the rise well before the start of COVID, but the impact of stay-at-home orders catapulted a massive shift to digital around the world. The crisis has changed the way we live, work and shop — and digital payments have allowed us both necessities and conveniences when we need them most.

Consumer online spending is up globally, with spend per active card-not-present cardholder up by over 25% in April compared to January. But the rise has come at a cost: the potential for increased fraud in a world full of hackers trying to steal personal data.

A 2019 report from Juniper Research estimated that retailers could lose $130 billion in fraud from card-not-present e-commerce through 2023 (and that was before COVID). And that doesn’t account for the reputational hit a business experiences as a result of a customer data breach.

At Visa, expanding tokenization, or Visa Token Service (VTS), has been critical to reducing digital fraud globally – making digital commerce seamless and secure for more types of digital transactions. Visa transaction data shows that tokens can reduce fraud by 26 percent on average compared to traditional online card transactions where you enter your primary account number (PAN) online.

Since their introduction, Visa Tokens have taken the payments industry by storm and grabbed the attention of industries ranging from automotive to entertainment. We recently reached a major milestone, issuing our billionth token. Visa Token service API’s drove about 6 billion tokenized transactions in 2019, growing at over 100%. 

It’s clear that tokenization will remain a driving force behind the future of digital payments – especially as digital shopping habits become more ingrained as part of our new normal.

Tokens convert a cardholder’s 16-digit account number into a digital credential that can’t be stolen or reused.  With tokenized transactions, the personal account number is locked away for safekeeping, replaced with a unique digital identifier that can be limited to a specific device merchant or transaction type. And since it can only be validated by Visa, a stolen token is about as useful as a stolen car without an engine. It’s going nowhere.

Through the Visa Developer platform, fintech startups can create their own mobile payment application with the Visa Token Service SDK — developing payment solutions that integrate directly with token management tools.

More than two-thirds (69%) of U.S. consumers choose to store a card-on-file or have recurring billing with their most trusted merchants, who rely on tokenization to enhance security and make their customers’ digital transactions less susceptible to fraud.

You can learn more about Visa Token Service here and at the Visa Developer Center, including provisioning and lifecycle management in digital wallets. 

Taking tokens from card to cloud

With more merchants and retailers adopting tokenization technology, Visa is scaling our credential-on-file tokenization efforts. Since our first merchant began processing card-on-file tokens in 2017, we have seen more than 13,000 merchants start transacting with Visa tokens.

In addition to enhancing security, tokenization also helps reduce friction in the payment process, because customers do not have to manually update stored card information if their Visa card is lost, stolen or expires. Instead, financial institutions can automatically update expired or compromised payment credentials. This can reduce missed payments for merchants, and help consumers avoid unwanted late payment fees or charges.

Looking ahead, we are unveiling Token ID, a new solution stemming from our acquisition of the Rambus Payments token services business that expands Visa’s tokenization across all global and domestic networks, as well as tokenizing beyond card use cases.

In addition, we are looking for ways to centralize and simplify token management through integration with our CyberSource platform to help to secure customer payment data, improve payment conversions and ease PCI compliance implications. Token Management Service by CyberSource creates one unified token identifier — a token-of-tokens — to centralize and orchestrate management of all payment instruments, including cards, bank accounts and local payment schemes.

We’ve also introduced a new Cloud Token for use across multiple trusted devices, instead of being bound to a single device as consumers expand their use of devices for online shopping. Cloud Tokens are available globally but launched first in Brazil, where consumers are the first in the world to use the new Visa Cloud Token technology to help enable secure payments on WhatsApp.

This is a key moment in time in which we can drive innovation in payments while also reducing potential fraud online in the face of this crisis. The challenge may be new, but the solutions are something we’ve been fixated on for decades.

As businesses re-open, digital and contactless payments will be critical for our health and safety—and we will be unrelenting in our efforts to make the digital payment experience safer and more convenient for merchants and consumers everywhere.