The next wave in digital fraud prevention

Counterfeit credit card artists know the score. EMV chip cards are coming to the United States, and very soon the business of duplicating plastic – an $11 billion business – will be all but extinct. Yet, these nimble con men and women are not about to give up on the lucrative payment fraud business. Instead, they will redirect their energy, focusing it squarely on the digital universe.

Fortunately, the industry has formulated a response to the growing card-not-present (CNP) fraud threat – tokenization.

Whereas chip cards were created to address card counterfeiting, tokenization is built to remove card data entirely from digital devices and infrastructure. Not only does this reduce the security vulnerabilities, it also allows issuers additional control of payment devices in the digital channel. Together, EMV and tokenization tag-team to reduce or eliminate fraud in the card-present and card-not-present channels, with minimal to no impact to the cardholder.

Tokenization replaces all the coveted card account data that’s being hacked and sold on the black market with secure digital tokens. These tokens have absolutely no value to thieves. That’s because only the major card networks who provision the tokens are capable of decrypting them. What’s more, tokens are unique to the devices and e-commerce merchants they are provisioned for.

You can see why tokenization has support from all corners of the industry – from card brands to merchants to issuers. Now thanks to Apple’s highly visible use of the technology inside of its wallet solution Apple Pay, even consumers are excited about the benefits of tokenization. Importantly, tokenization promises cardholders enhanced security without asking them to do anything special to obtain that extra layer of safety.

Say, for instance, a Visa cardholder adds his credit card to Apple’s Passbook so he can begin to use Apple Pay. Upon receipt of the request, Visa creates a unique token and sends it to the cardholder’s iPhone 6. When the cardholder uses his iPhone to transact, the phone passes the token to the terminal or e-commerce merchant. Even if a crook managed to both steal and decrypt the token, he or she would also need to have access to the very device from which it originated to make any use of it. This all but eliminates the black-market value of stolen payment tokens.

In the world of payments, the U.S. has often found itself lagging behind other countries. Take the innovation of chip cards, for example. Solidly in place in Europe since 1992, EMV is only just beginning to take hold in the U.S. The same can be said about mobile payments. In Singapore, cooperation between financial institutions, mobile networks and the government is moving the country toward mobile payments faster than arguably anywhere else in the world. Then there’s alternative currency. Whereas Kenyan people have been using digital currency via M-Pesa since 2007, Americans are only just beginning to talk about options like bitcoin.

With tokenization, on the other hand, the U.S. is poised to be a leader in payments innovation, dramatically changing the digital payments landscape forever. Moving swiftly in response to EMV-related fraud trends, Visa, MasterCard and Apple have set the tone for global protection of consumers. Now, credit unions have an opportunity to be a part of this leadership, achieving significant fraud savings and cardholder loyalty along the way.

Brandon Bolger

Brandon Bolger

Brandon Bogler is a product manager for The Members Group (TMG), leading the payment processor’s tokenization enablement strategy. He can be reached at brandonb@themembersgroup.com. Web: www.themembersgroup.com Details