This blog was originally posted on May 2, 2016 and was last updated on May 31, 2018
As the mobile payments market has expanded, tokenization technology has emerged as an essential element to enable secure mobile transactions.
This has created a number of questions for the issuing ecosystem. Chief among which is how to access the essential tokenization services that underpin the security of mobile transactions.
What is a Token Service Provider?
The TSP provides registered token requestors, for example a merchant holding the card credentials, with payment tokens. In parallel, TSPs are responsible for various other functions. They manage ongoing operation and maintenance of the token vault, deployment of security measures and controls, and the registration process of allowed token requestors.
TSPs issue and manage the entire lifecycle of payment credentials, implement tokenization to reduce fraud and oversee transactions to integrate with the existing authorization host by converting or validating cryptograms, as well as performing processing checks.
Who can become a Token Service Provider?
EMVCo, the global technical body, has clearly defined a list of candidates who can register as a TSP:
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-us’ transactions. 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.
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.
Becoming a Token Service Provider
To date, the TSP has been most commonly integrated within the service offering of networks and issuer processors. To optimize tokenization activity, issuers are also considering becoming their own TSP.
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 that it has the potential to offer 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.