68
69
CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Option 1 The merchant captures the funds prior to checking inventory and those funds become unavailable to the customer. Upon recognizing the item is out-of-stock, the merchant initiates a refund process with additional authorization and settlement costs. Additionally, during this time the customer may become frustrated with merchant for tying up their funds and could initiate a fee-ridden chargeback process. Option 2 The merchant has authorized – but not captured – the transaction and identifies the item is out-of-stock. If the merchant is confident inventory will be expediently replenished causing only a minor shipment delay, they may decide to leave the authorization pending for a day or two before they capture the authorization and ship the item. If the merchant fails to clear or settle that authorization within the time windows dictated by card network rules, the merchant may become subject to network integrity fees 110 , such as the Visa Misuse of Authorization Fee 111 or Mastercard Processing Excellence Fees. 112 Much like the designations of card-present and card-not-present, card transaction desired settlement timeline parameters are dictated by global payment card networks for all industry stakeholders, which may create efficiencies through common practices, but also risks creating inflexible operations and limited checks and balances on rising network fees. 113 114 Section 3.3.3 – Tokenization Dynamics The growth of tokenization technology use cases for payment transactions is yet another area that complicates customer experience, cost, and fraud dynamics for payments, especially those in ecommerce and mobile channels where tokenization is used to protect stored card or account credentials. In this section, we will review several of the strategic considerations tokenization technologies add to the ecommerce question. TOKENIZATION BACKGROUND Tokenization is the process of replacing sensitive credentials with a different, non-sensitive value. The technology has been utilized to protect sensitive customer and account information by financial technology companies for nearly three decades. In the context of payments, tokenization has been used by various stakeholders, including merchants, acquirers, payment service providers, and more recently, payment networks. With many of
these use cases, a merchant is contracting directly with the provider to provide a tokenization service. In the instance of ‘acquirer tokens’ (see Glossary), for example, the acquirer manages the ‘token vault’ which stores the Primary Account Number (PAN) and token information and disseminates them throughout the transaction flow. In more recent years, a framework for ‘network’ payment tokens (see Glossary) was developed by EMVCo, an organization operated by the six largest global card networks – American Express, China UnionPay, Discover, JCB, Mastercard, and Visa. 115 This EMVCo framework covers global credit and debit card transactions, and in many instances, the global network is central to managing the network payment token credentials as the owner and operator of token vaults.
Figure 3.1 – Tokenization Overview
There are a few ongoing industry stakeholder concerns about the implementation and usage of network tokens for payment card transactions, primarily regarding commercial dynamics and data visibility. With these challenges pending, policymakers in multiple geographies have taken notice of the payment network token framework, and some jurisdictions have taken a more active intervention approach than others, which this report will explore in Section 5. TOKEN VAULT MANAGEMENT The initial EMVCo framework generated some consternation amongst both the merchant community and domestic-only networks that facilitate consumer credit and debit card transactions for their partner banks. Essentially, the operator of the payment network token vault serves a central role that makes them a critical stakeholder in any transaction utilizing the payment network token framework. While some merchants have actively elected to deploy payment network solutions, some other types of transaction environments default to the payment network token transaction framework, such as NFC-based mobile wallet transactions 116 and web browser auto-fill tokens. 117
110 Authorization and Reversal Processing Requirements for Merchants (visa.com). It is our understanding Visa currently requires most card-present transactions to be settled within 24 hours; meanwhile, most card-not present transactions may be settled over 7 calendar days. 111 What is the Visa Misuse of Authorization Fee? - Visa Assessments (cardfellow.com) 112 What is the Mastercard Processing Integrity Fee and When is it Charged? (cardfellow.com) 113 Visa Core Rules and Visa Product and Service Rules. 14 October 2023. 114 https://www.wellsfargo.com/assets/pdf/small-business/merchant/merchant-passthrough-fees.pdf
115 Overview of EMVCo | EMVCo 116 Apple Pay | Issuers | Visa 117 Visa_Autofill_FAQs.pdf (chase.com)
Powered by FlippingBook