Monday, October 23, 2017
It's been a busy time at Mastercard. The past week has seen a flurry of news coming out of the Purchase, N.Y.-based payments giant. Specifically, Mastercard has heralded the following: release of a blockchain application programming interface (API) for business-to-business (B2B) transactions; certification of The Clearing House as a provider of Mastercard-branded tokenization services; and the elimination of signature requirements POS transactions, beginning next year.
In an email alert dated October 19, 2017, Linda Kirkpatrick, Executive Vice President, U.S. Market Development at Mastercard, revealed signatures will no longer be required for Mastercard-branded credit and debit cards at any POS checkouts in the United States or Canada, effective 2018.
Kirkpatrick said the move mirrors evolving practices and consumer preferences. Changing rules on signatures for low-dollar transactions have chipped away at the need for signatures. Kirkpatrick stated that over 80 percent of Mastercard in-store payments already occur without signatures. She also noted that Mastercard consumer research suggests "a majority" think doing away with signature requirements would be simpler and promote faster checkout lines. Ditto for merchants.
"Removing the need for signature is a change our merchant partners support. The move will help merchants speed customers through checkout, provide more consistent experiences for every customer with every purchase and should decrease costs associated with safely storing signatures," Kirkpatrick said.
Some industry observers and merchants have questioned the need for signature authorizations for transactions using cards secured with EMV chips at EMV-compliant terminals. Kirkpatrick did not address those questions directly, but noted that Mastercard relies on "newer, more secure methods to prove identity," including chips, biometrics and tokenization.
In fact, Mastercard has taken a major step toward advancing card tokenization with its certification of TCH as a token service provider to U.S. financial institutions.
Tokenization is considered a highly effective security protocol with minimal cardholder impact since it works entirely behind the scenes. Card numbers get replaced with unique digital tokens which accompany transactions through the authorization, clearing and settlement processes. The real numbers are never revealed to merchants and thus cannot be stolen by hackers.
TCH is payment company owned by two dozen of the nation's largest bank. It is a leading provider of ACH, check and wire transfer services to financial institutions and has been working with leading technology companies on new real-time payments infrastructure.
An agreement announced by Mastercard on Oct. 19 authorizes TCH to support tokenization capabilities for Mastercard-issuing clients, regardless of channel. "Through this partnership, banks that issue Mastercard-branded cards now have the choice to tokenize their customers' accounts through TCH, providing their customers digital payments options that offer the same safety, security, rights and benefits tokenized by Mastercard," stated Sherri Haymond, Executive Vice President for Digital Partnerships at Mastercard.
TCH said it expects to roll-out its new card-tokenization service early next year.
Also scheduled for early next year: availability of a new API to support blockchain transactions via the Mastercard network. But crypto-currencies like bitcoin, perhaps the best known application of blockchain technology, won't be supported.
Blockchain technology, which uses complex mathematical formulas to keep secure and definitive records of transactions, is about more than just payments. The technology can and is being applied to all types of business processes that require simultaneous access to and sharing of information within and between enterprises.
Crypto-currencies have raised numerous red flags with regulators worldwide – a fact Mastercard officials referenced in public statements following the company's October 20 announcement about it blockchain API. "We are not using a crypto-currency, and we are note introducing a new crypto-currency," Justin Pinkman, Senior Vice President at Mastercard Labs, insisted in an interview published by Fortune. "If you do a payment, then what we can do is move those funds in the way that we do today in fiat currency."
Mastercard, through Mastercard Labs, has been working on its own blockchain technology for several years, and claims to have about three dozen patents pending that relate to the technology. It also has invested in an incubator for companies promoting blockchain technologies, Digital Currency Group.
Mastercard said it will provide its blockchain API to partner banks and select merchants to use for B2B applications, like trade finance deals. "By combining Mastercard blockchain technology with our settlement network and associated network rules, we have created a solution that is safe, secure, auditable and easy to scale," said Ken Moore, Executive Vice President at Mastercard Labs.
Matt Shaw, of the digital business consultancy Synechron, described the move as more than a "technology hedge" by Mastercard against new entrants in the B2B space. "Mastercard's announcement shows a real-world implementation of blockchain backed by a large, well-established global payment operator with the brand strength and extensive customer network to gain trust and adoption," Shaw said. And it brings an "innovative emerging technology" to a wider audience of potential users, he added.
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