How fintech tokenization empowers users and boosts innovation (VB On-Demand)

by James · November 7, 2022

Presented by Envestnet | Yodley

Account tokens are a highly secure way to retrieve, verify, manage and maintain financial data. In this on-demand webinar, learn how these tokens help payment processors prevent financial fraud, reduce transaction risk, facilitate data sharing, and more.

Watch for free on demand!

Returns, breaches, fraud and account takeovers are a growing problem. When a payment type is compromised – whether card to non-card payment rails or fiat to non-fiat payment applications – it is not only expensive for the entire ecosystem, but also disruptive to the consumer experience and business operations. As a result, tokenization has emerged as a form of protection that eliminates much of the hassle when a transaction is compromised.

Jeff Williams, SVP of Product Development at The Clearing House (TCH) and Ginny Chappell, EVP, Product and Marketing at Moov Financial, joined Lloyd Fernandes, VP of Product Management at Envestnet | Yodlee to talk about how tokenization is transforming both data security and customer service in the financial services world.

Tokens have been dominant in the card world, but the technology is becoming more widespread in the banking world, as a way to add a more effective data security layer to bank or bank accounts, especially as more and more accounts are distributed to third parties to be used for payments. Encryption only secures data at rest; at a point that needs to be decrypted to be used to make a payment and go through all the hops in the payment flow. And depending on the use case, there are several jumps in the payment flow where the data is exposed.

For tokenization, a token service provider (TSP) offers a service that takes sensitive data, such as PAN (the 16-digit account number on a card) or a bank account, or personally identifiable information (PII) as input. It then generates a surrogate value, or token, as an output. The sensitive data and the token itself are then stored in a token vault at the TSP.

A merchant or independent software vendor (ISV) can store the token in their environment without worrying about exposing underlying sensitive PII data. Banks can simply disable and re-tokenize in the event of fraud without the hassle and hassle of closing and reopening an account. Additionally, it simplifies complex account verification processes, eliminates the need to store sensitive financial account information, and more.

Account tokens look and are formatted like a real account, with a routing number associated with them and a generated account number from the token service provider’s vault, which is unique to the tokens and to each bank. By virtue of that, token transactions are transparent and flow seamlessly through the network, whether it’s a fintech app, a corporate entity or an invoice issuer.

Account tokenization provides an additional layer of protection at rest by encrypting the real account. But in transit, as the token flows through the system, it is not a real account. If a hack or breach occurs at a hop in the payment flow when used on one of the network rails, it is unusable and cannot be used by an unauthorized party.

Fintechs, billers, apps and other third parties can have their own unique token. If a bank detects fraud, or they no longer want to do business with a particular app or fintech or biller or device, they can turn off the individual token, without disrupting the entire payments industry by blocking an account as a whole. It provides some highly detailed security mechanisms for banks to manage their financial data as it is distributed to the market, eliminating the myriad costs that account disputes add.

“It’s more than $200 for a bank to close and reopen or issue an account that has been compromised,” Williams said. “Then think about all the different places that account exists. Having to reopen an account and close the old one for the customer and find all the places the old one existed is painful and expensive. The beauty of the token is that you request it directly from a vault. That vault knows exactly where those tokens are distributed for that account, which is useful in any kind of fraud situation.”

For the complete roundtable discussion with industry experts on the many benefits of tokenization, from how it empowers users to how it boosts innovation, watch this VB On-Demand event now.

Stream on-demand here!

You will learn how account tokens: