What Is Tokenization?

Visa  (NYSE: V  ) , MasterCard  (NYSE: MA  )  and American Express  (NYSE: AXP  )  have teamed together to push for greater security in the payment industry through tokenization. What exactly is tokenization, though? The Motley Fool spoke with an expert to find out.

The history
In October of last 2013 MasterCard, Visa, and American Express announced they would be joining forces in an effort to propose a new standard for simpler and safer shopping across the global in the payments industry through tokenization.

The announcement noted this new standard would "allow the traditional account number to be replaced with a digital payment "token" for online and mobile transactions."

These efforts were highlighted even further when in January EMVCo -- a technical body in the payments industry jointly owned by American Express, MasterCard, Visa, and others -- announced it would be seeking to standardize tokenization across the payments industry. 

That news said the standard would "help provide the payments community with a consistent, secure and interoperable environment to make digital payments," as greater security is pushed for.

The thought of a a secured, individual payment "token" generated and transferred, is easy to imagine, it's difficult to grasp.

In the video below, Motley Fool contributor Patrick Morris speaks with Matt Getzelman of Coalfire, a risk management firm, at the payments industry TRANSACT14 conference to better understand exactly what tokenization is.

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  • Report this Comment On May 07, 2014, at 4:30 PM, KHaze wrote:

    Thanks for this breakdown. Knowing that my data is "tokenized" in transit to the cloud and within the cloud does make me feel safer about companies storing my personal information.

    I actually didn't really understand the process of tokenization until I read this article. Security company Perspecsys also does a decent job explaining it with a slightly cartoonish article:

    Seems in line with this piece - though less specific to finance.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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