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So, what exactly happens when you use your payment card?

·3-min read
Here's exactly what unfolds when you hit 'purchase'. (Source: Getty)
Here's exactly what unfolds when you hit 'purchase'. (Source: Getty)

The way Australians make payments has changed drastically, with new wallet technology supporting the tokenisation of payment credentials for fraud prevention.

Mastercard first began trialling the technology in 2019, with one in three card transactions now tokenised in a gear shift designed to protect cardholders details.

During the fourth quarter of 2020 and the first quarter of 2021, the amount of money spent using tokenised payments also increased 36 per cent.

The technology is now widely used, although Mastercard’s head of product and innovation, Surin Fernando, admitted it was a major change that consumers probably wouldn’t have noticed.

So how does it work?

Tokenisation is the process of replacing a card’s account number - the 16-digit number on the physical plastic card - with a unique, alternative number or ‘token’.

Once a cardholder enters their details to make an online purchase, they’re immediately replaced with the unique token. And once the payment is made, it’s made using the encrypted token, not the card details.

“It’s about encrypting and making those card details unique to you, almost like your fingerprint, and how unique your fingerprint is to you,” Fernando told Yahoo Finance.

“So, as you make a transaction on a device, we say, ‘Can we authenticate with your face? Can we authenticate with your fingerprint? And how do we make sure that we’re comfortable with that transaction taking place?’”

It also means that if a cardholder’s details change, the new details are automatically connected to the token.

For consumers, it means not having to update details every time a card expires, their card is stolen or compromised, or their details change.

Australians have already lost $249 million to scams in 2021 - significantly higher than the overall $176 million stolen in 2020.

At the same time, 94 per cent of Australians are planning to spend more online, with the average shopper to spend an extra $420 online per month in the lead up to Christmas.

Fernando believes it’s incumbent on card providers, lenders and merchants to develop solutions.

Users with the Big Four banks - CommBank, NAB, Westpac and ANZ - along with all other Mastercard issuers, have begun using the tokenised payments, with large online retailers like Afterpay also implementing tokenised payment capabilities.

“The piece that becomes really important is that the consumer - and the business, for that matter - needs to understand the protection that they have for each of these payment methods,” Fernando said.

Changing world of payments

Lockdown saw an explosion in subscriptions, with Australians signing up for food-delivery programs, Netflix, car subscriptions and other products and services with automated payments.

Around half of all Mastercard transactions now occur through a device, rather than a card, with the lines becoming increasingly blurred.

For example, several Woolworths stores now allow shoppers to do their grocery shopping and walk out without visiting a payment terminal. Instead, the entire transaction is carried out on their device.

“In our view, we want to try and encrypt those transactions as safely and securely as we possibly can, to ensure that there’s visibility between the parties that actually validate that transaction, and then think about the consumer experiences today,” Fernando said.

The next step is building out the payments framework to allow cardholders to pay in whichever way they like.

So, can users pay using their voice through a smart speaker, in the same way that they would use a card or mobile device? And where to from there?

“We’re quite focused on how … the consumer [is] going to potentially interact [with us] in the next iteration,” Fernando said.

“That includes things like the time they spend in social media and messaging apps, and the increased amount of time they spend at home.”

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