Visa Inc., MasterCard Inc. and American Express Co., the biggest U.S. payment networks, proposed using “digital tokens” instead of account numbers for processing purchases made online and with mobile devices.
“Tokens provide an additional layer of security and eliminate the need for merchants, digital wallet operators or others to store account numbers,” the companies said today in a joint statement.
The standard, to be applied worldwide, will be presented to other payment firms and industry trade groups in coming weeks, according to the statement. Tokens would be the digital equivalent of magnetic stripes on the back of plastic bank cards that contain customer information. They also may help to reduce fraud by providing uniformity as companies such as Google Inc. and Starbucks Corp. embrace mobile commerce and offer consumers new ways to pay.
“Mobile is the future,” Jim McCarthy, global head of innovation and strategic partnerships at Foster City, California-based Visa, said during the conference call. “We haven’t evolved to create a standard. For the first time, we are laying down the foundation.”
Global card fraud losses for banks, merchants and processors climbed 15 percent last year to $11.3 billion from 2011, according to the Nilson Report, a payments industry newsletter based in Carpinteria, California. Gross fraud losses in 2012 increased to 5.22 cents for every $100 in volume from 5.07 cents a year earlier.
Tokens also would complement so-called EMV-chip technology, which has become a standard in Europe and much of the rest of the world.
The U.S. is among the last developed nations whose payment system relies primarily on cards with magnetic stripes and hasn’t yet adopted EMV. Standards for the technology are managed by EMVCo, which was formed in 1999 by Europay International, Visa and Purchase, New York-based MasterCard. New York-based AmEx is also an EMVCo member.
As merchants worldwide deploy more EMV terminals, fraud is moving toward transactions conducted online or over the telephone where physical payment cards aren’t present, according to an August issue of the Nilson Report.
The U.S. has high fraud losses “because it leads the world in online sales,” according to the trade publication. “Smaller merchants who do not invest in fraud-fighting tools are particularly vulnerable.”