Visa tokens reach milestone

Tokenization has hit its stride in retail payments. Visa just announced that it has now issued more than 4 billion network tokens worldwide through its Visa Token Services, nearly doubling the total count in one year and exceeding the total number of plastic Visa cards in circulation.

Tokenization is the process of replacing sensitive information (in this case payment card numbers) with unique identifiers, or tokens, that accompany transaction data through the processing cycle.

Visa describes tokens as “the unsung heroes of ecommerce,” benefiting all parties to these transactions through reduced fraud, reduced friction and ease of use across devices. Its analysis shows that across more than 8,500 card issuers and 800,000 merchants, Visa tokens have led to a 28 percent drop in fraud rates and a 3 percent increase in approval rates. At last count, over 1.2 million ecommerce merchants were transacting with Visa tokens, Visa said.

Issuance of Visa tokens is a four-step process.

1. A consumer registers their card number, security code and other account information with a digital payments service (e.g.: online retailer or mobile wallet provider).
2. The service asks Visa for a payment token for the registered account.
3. Visa then reaches out to the card issuer for its okay.
4. With the issuer’s okay, Visa replaces the card number with a token and sends it to the service provider.

Tokens can be used for both mobile (NFC) and online payments. A token can be restricted to a particular mobile device, an eCommerce merchant, or a limited number of purchases before expiring. The transaction flow is pretty much the same as it is for plastic cards, with a minor twist.

• Consumer initiates payment
• Merchant sends token and transaction details to acquirer/processor
• Acquirer forwards token and transaction details to Visa, which sends it on to the card issuer
• Issuer either accepts or declines the transaction and sends a response to Visa
• The token and payment authorization are forwarded to the acquirer by Visa and the transaction is completed

Securing a digital future

“Tokenization is a simple, yet powerful concept pioneered by Visa: conceal and devalue sensitive payment data to stay ahead of fraudsters and make digital payments more secure,” said Jack Forestell, executive vice president and chief product officer at Visa. “The uptick in users, acquirers, merhcants and consumers all transacting with Visa tokens reinforces that the future of money is truly digital, and digital money must be built on trust.”

Ecommerce volumes have been growing by leaps and bounds since the onset of the coronavirus pandemic. Globally, ecommerce transactions rose from 15 percent of total retail sales in 2019 to 21 percent in 2021, and currently accounts for 22 percent of all retail sales, according to Morgan Stanley. And it shows no signs of petering out.

“We believe that the Covid-driven bump will not flatten future e-commerce growth,” said Brian Nowak, a Morgan Stanley analyst covering the U.S. internet industry. Nowak expects retail e-commerce sales to account for 21 percent of total U.S. retail sales by 2026.

“While the rise of e-commerce during the first year of Covid-19 in 2020 is easily explained, the fact that growth persisted in 2021 is evidence that a real behavioral shift to shopping online,” Nowak said.

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