Flying the Nest: It’s Time to Decouple Tokenization from HCE

Hans Henrik Hoffmeyer, senior vice president at Nordic payment services provider, Nets

In the world of mobile payments, tokenization has gained notoriety as the underlying technology enabling banks to secure mobile NFC payments using host card emulation (HCE). There is no contesting that this is a big deal; the combination has triggered a profound shift in the mobile payments ecosystem, reducing deployment complexity and giving banks a commercially attractive route to market.

But if banks want to harness the true power of tokenization, they must first separate the two technologies in their minds. Tokenization is the enabling technology; it can be used to secure any kind of value transaction. Securing HCE-based NFC payments in Android mobile wallets is just one application. An important one, for sure, but only one.

This is an important distinction. Nets’ Nordic and Baltic territories consist of some of the most ‘digitally ready’ markets in the world. The Nordics boasts 99% domestic broadband penetration, for example, and 69% of the population use digital channels to access public services, including healthcare. This means that new digital products are adopted very quickly. Take mobile transactions, for example. Currently these are growing at more than 90% every year and the region is attracting more than 1000 new mobile payment users every day. In contrast, manually performed transactions are decreasing at a rate of 19% per year and, by 2020, Nordea Bank estimates that 60% of all transactions will be performed via mobile devices.

With populations as digitally advanced as this, banks and their digital payment partners, like Nets, need to look beyond the payment itself and consider how mobile wallet solutions can cater for wider applications and services if they are to meet customer expectations and stay ahead of the curve.

As a result, Nets, together with the more than 200 Nordic and Baltic banks that we serve across these geographies, consider the mobile wallet to be far more than a mere payment instrument on a mobile device. To us, it is a facility where loyalty and other value added services can interoperate, and a host of additional services can also reside, relating digital identity, mobile banking and, of course, payments.

Currently, Nets connects more than 300,000 merchants with Nordic and Baltic banks, putting us in a great position to support both sides of the payment transaction. As a result, our customers are already talking to us about providing the ‘full stack’ mobile wallet solution, as a single, fully outsourced white-label managed service, including:

  • The tokenization service that secures the bank’s underlying transaction infrastructure.
  • The catalogue of integrated service options that tokenization can be enable, like the integration of digital receipts, customer profiling analytics, HCE-NFC security, and the capability to securely integrate with merchant-linked value added services, like loyalty.
  • The provision of (or integration with) the bank’s chosen end-user interface. This could be a bespoke ‘bank-pay’ mobile wallet application, or participation in an OEM-Pay solution, like Apple Pay.
  • Access to merchant-linked value added services, via Nets payment network, on a platform that enables them to quickly integrate and develop combinations of loyalty offers in accordance with the customer’s specific appetites.

Based on this model, which is all enabled and powered by tokenization, the future integration of other smart devices and wearables into the mobile wallet ecosystem becomes eminently feasible. Other concepts can also start to be introduced, like smart tokenization, where conditions and states can be built into the payment token to establish specific circumstances for validation, opening up a whole new realm of digital possibilities.

But before all of this, banks need to appreciate what tokenization can enable today. That starts by ‘decoupling’ it from HCE. Once this has been achieved, the real potential of this amazing technology can begin to sink in.

Author: Dylan Jones

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