Who Should be the Token Service Provider?
This entry was posted on Monday, May 2nd, 2016.
With the various mobile payment platforms rolling out worldwide, and consumers increasingly demanding mobile services from their bank, the issuing ecosystem is faced with a number of key decisions. Chief among which is how to access the essential tokenization services that underpin the security of mobile transactions.
In the quest to optimize tokenization activity, the role of the token service provider (TSP) has come to the fore. But what exactly is a Token Service Provider, and who should take on this role?
What is a Token Service Provider?
A token service provider is an entity within the payments ecosystem that provides payment tokens to any registered token requestors, such as OEM Pay wallets or e-commerce merchants who hold card data on their systems.
What does a Token Service Provider do?
Token Service Providers are a big deal right now. They have the ability to issue and manage the entire lifecycle of payment credentials, implement tokenization to reduce payment card fraud and ensure transactions integrate with the existing authorization host by converting or validating cryptograms, as well as performing processing checks. Token Service Providers are also responsible for a number of other functions. They oversee the ongoing operation and maintenance of the token vault, deployment of security measures and controls, and the registration process of allowed token requestors.
Who can become a Token Service Provider?
EMVCo, the global standards body, has clearly defined a list of candidates within its tokenization specifications. These include:
Issuers are in pole position to deliver the best security, control and tailored use of tokenization to meet their own strategy, regardless of which international or national payment brands they issue cards for. By becoming their own TSP, issuers can reduce long term costs by avoiding the tokenization and de-tokenization fees imposed by the payment schemes, in addition to saving on ‘on-us’ transactions. From a commercial perspective, issuers can retain their privacy and competitive edge as there is no need to relinquish control of valuable intellectual property or customer payment behavior data. Finally, being a TSP allows issuers to take control of their long term strategy and expand to multiple use cases to adapt to evolving market demands.
The Issuer Processor
Processors can offer tokenization as part of a bundle of processing services for multiple issuers. Issuers may find this is a cost effective way to process tokenized transactions. Equally, an issuer processor might be large enough to enable some scale-dependent interfaces, such as the provisioning interface to one or more ‘OEM Pay’ wallets. Most issuer processors provide a single point, or at least a reduced number of points, of integration for an issuer supporting multiple payment brands. They may also provide stand-in and other related transactional and customer services for the issuer.
Other Third Party Processors
Other third party processors may provide consolidated services to issuers, or even issuer processors, such as token vaults and provisioning interfaces. This offers efficiencies in terms of cost, security and economies of scale, in addition to services outside of the traditional payment transaction routing and processing ecosystem, such as provisioning.
Both domestic and international payment networks may enable issuers to tokenize some, or all, of their transactions. Economies of scale and wider commercial opportunities allow networks to also provide issuers with issuer processor (on behalf of) transactional services, and even third party processor aggregator services such as provisioning interfaces to OEM Pay wallets. The pricing of these services, or potential cross pricing of these with transaction service fees, will depend on the commercial nature of the network.
Should you become a Token Service Provider?
Of course, the manner in which an issuer chooses to implement tokenization is dependent on its existing policy in terms of in-house versus outsourcing, as well as wider commercial considerations. The benefits of becoming a TSP, however, are clear, in that it offers issuers lower long term costs, the ability to maintain independence and the flexibility to adapt and expand their overall business strategy.
To find out more about tokenization and TSPs, download the white paper for free here.