This last year there have been a large amount of financial data breaches in various banks and retail chains. Visa CEO Charles Scharf recently spoke about changing the way the credit card networks send and receive transaction data. What Visa is going to do is use a token system for transactions to close one more channels where data can be stolen.
Charles Scharf was quoted on Pymts.com as saying:
“Tokenization has opened up this whole world for us to be able to use digital devices to be a meaningful part of the payments flow in a way that (those payments) wouldn’t have in the past,” Scharf told attendees at the Bank of America Merrill Lynch 2014 Banking & Financial Services Conference. “Those of us that participate in the token infrastructure can make decisions on who you want to give access to, whether you want to charge for it and things like that. So it’s hugely meaningful to our ability to open up new channels and to make sure there’s clarity in terms of who controls the payment information. We put a rate schedule out there for tokenization. We said we’re waving everything through the end of 2015. We want people to adopt tokenization. We think it thus creates a meaningful set of opportunities that would be difficult for us to participate without something like tokenization.”
While tokenization is an excellent way to protect a credit card transaction, the fact Visa will charge more for it is disturbing as it drives up the costs yet again for retailers and consumers. Charles was more excited about the new avenues of revenue than he was a new security tokenization can provide.
An even better payment network would be Bitcoin, or another Cryptocurrency network yet Charles blows it off as not being that big of a change or useful. He sees it more of a currency than a network combined with excellent security measures. He also leaves it in the banks hands as to whether or not to make a decision on wanting to use Bitcoin. As has been shown, banks are very reluctant if not openly hostile towards Bitcoin. Visa CEO Charles Scharf said:
“Bitcoin is two things, right? Bitcoin is a currency, and it is a way to create a network. And the two today aren’t associated. People (ask): ‘Are you going to accept the coin?’ And the answer is, we’ll think about it when our clients actually want to use it. So when we have banks and merchants saying ‘Hey, our clients really want to pay in Bitcoin,’ then it becomes a meaningful question for us to answer. Until then, it is just theoretical would we do it, and we have – I forget a couple of hundred currencies or 170 currencies that we do business in. If we chose another one, we can certainly do that.”
Charles also addressed ApplePay, saying that it was enabled because of the tokenization work Visa has done.
“Our willingness to use the secure element that exists inside the iPhone, if there was no tokenization, we wouldn’t have done it, but putting randomized credentials on that phone in a way that is controlled in a very clear process-oriented way is something that we have great comfort in. And that will then allow other types of experiences, whether Google wants to do something on their own, whether they are HCE driven through Android and the developer community, whether it’s with device manufacturers,”
Charles does hammer home the point well that this last year of data thefts and security breaches has opened up the market to the new technology to combat the thefts. The costs are going to be considerable though, and some businesses may not be able to afford it. The inability to afford the new hardware and cost structures puts an enormous burden on smaller retailers and businesses. While he addressed this, it is not consolation to those affected.
“We sit here today just like we sat here two, three years ago, knowing that EMV is a more secure method of payment than (magstripe). So having said that, it’s very difficult for us to go tell all of our clients you now have to go spend a lot of money or else,” he said. “Having said that, we do that along with our competitors and we put out I think in 2011 we put out rules that said by 2015, if you don’t do this, there’ll be liability shifts. We gave plenty of time, and we gave them an incentive to go ahead and do it. Leading up to that no one wanted to do it.”
While this is all well and good, the upcoming changes leave a huge opening for Bitcoin as a viable, secure, and affordable payment method for businesses. The lower fees and secure distributed network will allow for a better option for businesses besides paying Visa and other companies more and more money to do what they should have been doing all along: Securely processing payments. Bitcoin is making inroads already into the business landscape with companies like Dell, Overstock, NewEgg accepting it for payments. Intuit adding Bitcoin support to Quickbooks will also help businesses affected by the cost increases associated with accepting credit cards with accepting the more secure and cheaper-to-use Bitcoin.
What do you think about tokenization? Comment below!
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