Security pacts may breathe life into digital cooperation

As long as there has been mobile commerce, there have been calls for different stakeholders to share competitive turf in the name of universal acceptance.

Last week's deal between Mastercard and Visa to allow each network's digital wallet to use the token protections from the other is substantial progress in the path to cooperation, enough to inspire more collaboration in an industry where sharing hasn't always been easy, according to Silvio Tavares, president and CEO of CardLinx, a collaborative organization that advocates for standards for card-linked offers and other products that link to payment cards.

"This is a great example of collaboration between competitors that solves a real pain point for consumers and merchants," Tavares said.

The network's token deal is focused primarily on mobile app and internet purchases, which are growing faster than contactless mobile payments in stores, and is subject to greater risk as the chip card migration forces crooks to seek other vulnerabilities. The lack of ubiquity for tokens is one such vulnerability, requiring more cooperation to shore up defenses.

Andrey Rudakov/Bloomberg

"When we think about fraud, it's usually an organized crime syndicate or syndicates," Tavares said. "They are working together to steal information such as credit card numbers. It's up to our industry to work together to fight that."

CardLinx's members include Mastercard, Amex, Discover, Hilton, Chevron and other large retailers and payment processors. It operates in markets such as Europe and Canada, developing ways to measure the effectiveness of advertising, and working with FICO to improve analytics.

Its members are interested in increasing e-commerce and in-store payments volume, which can be aided by both the token deal and the influence of large networks like Visa and Mastercard to create an environment for more collaboration. Since Visa and Mastercard have also recently entered into data sharing deals with PayPal, there's an environment of cooperation to build upon.

"The key here to is to encourage interoperability," Tavares said.

That's proven easier said than done. The growth of mobile payments has been sparked by battles over merchant acceptance, fights between mobile operators, controversies over exclusivity agreements for merchant partners for mobile wallets, and as recently as last week, support issues among technology companies.

These conflicts create friction in user experience—you don't want consumers wondering if one app will work at a certain merchant, or if a certain card can be loaded in a specific wallet, or if security is universal, Tavares said.

There have also been other agreements in recent days that include cooperation, including PayPal's agreements with Citi to tokenize Citi's cards for in-store PayPal purchases and FIS to add bank brand images to PayPal checkouts. PayPal earlier this year entered data sharing agreements with Visa and Mastercard to reduce user friction.

"To be successful, digital wallets need to be open, to allow customers to link and use multiple types of cards, not just from a single network," said Zil Bareisis, a senior analyst at Celent. "Being able to include Mastercard's token in Visa's wallet and vice versa makes sense for both customers and merchants and should encourage further adoption of digital wallets."

Beyond more collaboration and greater security for Masterpass and Visa Checkout, the token deal also has the chance to spark growth in a number of areas of payments technology, given that card numbers are used to authorize payment apps — protecting these numbers with sharable tokenization makes that process more universal.

"It won't matter which digital rails a token rides, it will get to where it needs to go," said Thad Peterson a senior analyst at Aite Group. "If I can accept any token on any set or rails, then I only need to have one path to my wallet or shopping cart and I can accept either. It's another reduction in friction and an accelerant for digital payments."