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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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June 22, 2015

The Current Tokenization Landscape in the United States

Last fall, Take on Payments featured a three-post series on tokenization. The first post introduced the technology regarding payment credentials and noted that merchant-centric tokenization solutions came to the market in the mid-2000s, driven by the Payment Card Industry Data Security Standard (PCI-DSS) requiring merchants to protect cardholder data. The second post examined some of the distinguishing attributes of payment token solutions in mobile wallets that were developed to replace the payment card's primary account number (PAN) with a token so the presence of the cardholder's PAN would be minimized or eliminated in the payment's data transmissions. The final post examined the challenges of payment tokenization and discussed its effect on payment risk over the short term.

Working with the Mobile Payments Industry Workgroup (MPIW), the Federal Reserve Bank of Boston's Payments Strategies group and the Federal Reserve Bank of Atlanta's Retail Payment Risk Forum just released a comprehensive white paper on the current tokenization landscape in the United States. Based on our research and interviews with more than 30 payment stakeholders, the white paper provides an overview of the U.S. payment tokenization landscape for mobile and digital commerce (versus physical card payments), describes the interoperability of different tokenization systems, and examines the status of these 30 stakeholders' plans to implement to a broader audience of industry stakeholders, policymakers, and regulators.

The paper discusses the many benefits, challenges, gaps, and opportunities of tokenization from the perspectives of the major industry stakeholder groups, while acknowledging that there is not always full agreement on current approaches or underlying details. The goal in authoring this paper is to encourage further collaboration among the stakeholders to resolve differences to the mutual satisfaction of stakeholders in the industry and to provide what is best for consumers.

Tokenization in mobile payments is just a very small part of the potential impact that tokenization can have in reducing fraud in the overall payments environment, but it is a start in a payments channel that is expected to grow significantly in the years ahead. We hope that you find the paper informative and feel free to contact us if you have any questions.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed