Credit- and debit-card fraud has become an increasing challenge as more bad actors have sought to profit from the region’s e-commerce boom. For example, card-on-file payments can be highly vulnerable during data breaches as fraudsters use stolen customer card information for nefarious purposes.
In response, the payment ecosystem has tightened rules around verifying if a customer is who they claim to be when they pay online. However, this has led to the unintended issue of false card declines, where legitimate transactions are rejected by a bank or payment processor after they are mistakenly flagged as a suspected attempted fraud.
In both scenarios, no one wins. Merchants stand to lose revenue when false card declines translate into lost sales. Customer trust also tends to diminish when fraud happens. Meanwhile, declined payments or delays in authorisation lead to understandable frustrations for consumers, who expect security to be a non-negotiable prerequisite for digital payments.
So how can merchants provide better payment experiences for their customers?
With the introduction of payment tokenisation technology, Visa, the global digital payment network, is taking proactive steps to address these friction points in the payment journey. Tokens help boost payment authorisation rates and create frictionless customer experiences, while making digital transactions more secure.
The solution has received enthusiastic support from major partners and financial institutions, allowing more businesses and consumers to enjoy the benefits it brings.
“Put simply, payment tokenisation substitutes a unique digital identifier – a token – for the physical plastic card with a 16-digit number, which is used to transact on most e-commerce sites,” says Previn Pillay, Visa’s Singapore-based senior vice-president and head of merchant sales and acquiring for the Asia-Pacific region. “This makes for a safer, more convenient payment and lower levels of fraud.”
To illustrate the benefits, Pillay says that when consumers sign up for a music or video subscription service, for example, the merchants involved normally process the sale through the 16-digit PAN tied to the card.
However, card-related data can somehow be accessed illegally by bad actors who use the information to make fraudulent transactions. With the spread of malicious digital tools and artificial intelligence (AI) technology – computer systems that can copy intelligent human behaviour – the risks associated with this could increase markedly.
To deal with these inconvenient payment disruptions, the Visa Token Service (VTS) creates unique identifiers with cryptographic keys when consumers agree to a transaction with a merchant, be it a supermarket, online platform or subscription service. These tokens, instead of cardholders’ PAN information, are used to process and authorise the transaction, which keeps sensitive personal credentials safe. In short, VTS acts as a vault and holds the keys to encrypt and decrypt as and when necessary.
These tokens cannot be used anywhere else because a different token or set of keys is created for payments to other businesses, and each transaction still needs to be approved by reference to Visa.
Tokenised transactions deliver better customer experiences that ultimately benefit merchants. For one, while cards expire over time, tokens do not. For merchants which depend on revenues from recurring payments and subscriptions, tokens minimise the chances of false card declines, leading to cancelled or paused subscriptions when customers accidentally miss a payment. For consumers, this means smoother access to services they love and fewer interruptions to their lives.
Secondly, Visa Subscription Manager helps cardholders easily keep track of the merchants to which they have subscribed. Typically accessed through their issuing banks’ websites or applications, consumers can control the merchants with which they want to continue transacting, and those they wish to pause or stop.
“In terms of adoption, the results we see are very positive,” says Pillay, noting the recent milestone of one billion tokens now provided to cardholders in the Asia-Pacific region. “Merchants have also seen an uplift of over US$2 billion in payment volume and VTS has led to a 58 per cent reduction in payment fraud for those using it, so this is clearly transforming e-commerce for the better.”
The service is supported by banks and issuers, and customers can benefit from the technology without having to take any direct action.
In most instances, when dealing with a token-supported merchant for the first time, consumers will be asked to affirm that their credentials can be stored and updated. They may also need to authenticate with VTS on the first use or when loading card credentials into a mobile wallet, but the validation process is quick and easy. It can be performed in a range of secure ways, such as with a one-time password (OTP), or via a redirect to customers’ banking app.
For merchants and consumers, there is also the reassurance of knowing that multiple fraud detection technologies are operating in the background. One of them is Visa’s Cloud Token Framework, which records and binds tokens to devices that consumers use when making transactions.
This means that even if bad actors attempt to transact with a different device, consumers can be alerted to prevent fraudulent transactions. This added layer of security, coupled by the improved payment experience, helps customers transact digitally with more confidence, potentially translating into happier and more loyal customers.
“Because each token is only linked to one [seller or service provider], we can create higher standards for security,” Pillay says.
“If a merchant provides the right level of data, VTS can readily identify who is paying; we will know with a high degree of certainty. And if, for example, we look at a spending pattern and there is something irregular, then a transaction may be perceived as high risk.”
“Our platform is a foundational service in terms of payment tokenisation,” Pillay says. “We have seen many financial institutions really embrace this technology because they recognise the benefits of lower fraud and a better consumer experience. And, as spending habits change, digital commerce will be transformed.”
The proprietary technology on which everything relies was developed by Visa and is delivered through the company’s various financial and commercial partners, including food delivery, ride hailing and e-commerce platforms around Asia-Pacific.
As positive momentum for tokenisation continues to build, the plan is to expand VTS to all markets in the Asia-Pacific region and introduce other value-added services that improve consumer-merchant interactions and encourage greater adoption.
Indeed, e-commerce in the Asia-Pacific region is now on track to account for 6.4 per cent of global gross domestic product by 2025 – up from 3.8 per cent in 2019.
Pillay says: “Consumers have grown accustomed to purchasing products and services digitally, and these habits are here to stay.”