EXCLUSIVE: ‘Tokens of merit’ – Myles Dawson, Adyen in ‘The Paytech Magazine’

Myles Dawson, UK MD of payments platform Adyen, considers how tokenisation improves the customer experience in the face of rising contactless limits and tighter security

UK contactless card payments went ‘ton-up’ in October – banks lifting the payment ceiling for the second time in two years. The ton was a term coined by bikers after the Second World War for machines that could hit 100mph, and there’s no doubt contactless payments have gone full-throttle, too, having been heavily promoted during the pandemic as a way to reduce infection risk.

Figures from industry group UK Finance show the volume of contactless debit card transactions made in the UK in June was 75 per cent higher than two years earlier, while Barclaycard said 88.6 per cent of all UK card payments in 2020 were contactless. The switch from a £30 limit to £45 in April 2020 prompted widespread discussion about security; there’s been comparatively little controversy over the latest limit increase to £100, although a Sunday Times poll recently suggested that most consumers were nervous of accelerating quite so fast. Some banks, in fact – Lloyds and Starling among them – perhaps conscious of their rising liability and potential pain to consumers should they be victim of fraud, have given customers the ability to place their own spending controls on cards for the first time, reverting back to £30 if they wish.

Whatever headroom individual consumers are comfortable with, the apparently irreversible growth of contactless is further evidence of the trend towards low/no-friction payments. However, loved as they are by consumers and demanded by online retailers keen not to see shoppers abandon their carts in an impatient strop, there is an inevitable tension between fast and frictionless payments and security.

Some in the industry viewed strong customer authentication (SCA), which introduces additional secure steps in the payment process as part of the revised Payments Services Directive (PSD2), with alarm, concerned that it would undo much of the progress made in fuss-free transactions. Can that be ameliorated?

To an extent, yes, says Myles Dawson, UK managing director of payments platform giant Adyen, if you employ tokenisation. He points out that, under SCA, if a merchant is operating an online top-up or subscription-based business model – hugely popular examples being Uber or Netflix – tokenisation allows you to keep calm and carry on collecting the money. For other transactions, he believes SCA will be much less of a challenge with tokenisation in place than it would have been without it. That’s partly to do with the post-pandemic consumer mindset.

“Before the pandemic, people were less likely to save their card details with an online store but that’s moved on now,” says Dawson. “People have seen the benefits of buying things from Amazon with one click, and they’ll save their details now for a slick journey that avoids having to keep rushing into another room to find their payment card.”

While tokenisation won’t entirely do away with the need for strong customer authentication in many instances, it will definitely help improve the repeat customer experience, allowing merchants servicing those customers to offer a ‘one-click’ experience.

Shifting the risk

The process of replacing sensitive data with non-sensitive data – a unique string of numbers that are of no use to a fraudster – safeguards the primary account number (PAN) carried on a card. Merchants using Adyen’s point-of-sale terminals and online shopping platform have the choice of switching between tokens created by Adyen or a network token created by the card provider. In both cases, the customer enjoys a smoother payment experience, security is improved since each transaction is protected by a one-time-use cryptogram, and the merchant can relax because they’ve effectively transferred risk to the payments platform or card issuer that undertakes to store the sensitive data behind the token.

Dawson says: “Tokenisation removes a lot of the burden of managing Payment Card Industry (PCI) compliance from the merchant and hands it to the payment company. It’s a really secure way to enable smaller retailers and different kinds of business model, to seamlessly create a payment flow.

“That’s vital for them, because over the last five years, companies like Uber have changed consumer thinking on what payments should be like, as have subscription businesses where the payment is almost hidden – you pay once, you subscribe, and money keeps coming off your card.”

That said, Adyen has witnessed differing acceptance of tokenisation among issuing banks, which is why it offers merchants the choice of using an Adyen-generated token and a network token.

“The schemes have created their own network vault, effectively, where they store all the tokens and we reach out to them for the latest card data every time,” says Dawson. “That has obviously removed some friction from the process and, longer term, that could develop into something really interesting. Meanwhile, banks have had to augment their technology to accept these network tokens, and we’ve seen different acceptance levels within different issuing banks. So, we could send a network token to one bank, and it’s far more likely to get accepted than a token generated by us, whereas with another, it will be the opposite because of the way they’ve adopted that technology.

“While we’re constantly talking to the banks to try to level that playing field, meanwhile our AI is learning which token to use and how to send the payment request so that merchant is more likely
to receive authorisation for the payment.”

As regards the arrival of multi-factor or strong customer authentication, Dawson is confident teething problems will ease over time, since its importance for the secure use of cards is not in doubt. While Apple Pay and Google Pay can run without an upper limit since the cards within the virtual wallet sit behind the phone’s security, plastic is all too easy to scam. But, In the same way that some banks are now offering customers the chance to set their own, contactless card spending limit, merchants can customise the Adyen system to suit their own risk profile by specifying additional checks or even reducing the £100 contactless limit at their checkout.

Dawson stresses that SCA undoubtedly provides a more secure environment and gives merchants more control over how transactions are approved.

“Everyone will get used to it over time,” he says. But, beyond that, he expects to see payment flows speed up as banks’ own AI begins to learn individual customer habits, increasing the likelihood of a fraudulent transaction being blocked and a genuine shopper being waved through an online checkout without additional steps. Depending on the perceived risk with a transaction, the issuer may not even bother asking for additional authentication, perhaps because they know it’s you, on your device or on a website you’ve used a lot,” he says.

Dawson sees tokenisation playing a central role in reducing the friction in three big payments trends in particular: pay and collect, buy now, pay later (BNPL), and the marketplace model where multiple merchant payments are funnelled through one platform. Worldpay said BNPL was the fastest-growing online payment method in Britain in 2020 and predicted it will account for 10 per cent of UK e-commerce spending by 2024. Meanwhile, the 2020 McKinsey Global Payments Report outlined that marketplaces such as Amazon, eBay, Etsy and Shopify had seen seller sign-ups soar between 70 and 150 per cent during the pandemic.

Adyen has seen the popularity of click and collect expand exponentially among its own clients. Dawson cites just one example: “A company we work with had to close its cafés in the pandemic – they were building a loyalty scheme app and realised it could be used for transactions, too, so it was developed for customers to order and pay for a drink that was waiting for them on a table outside when they arrived. That was a great shopper journey for them.

“We’ve also really seen buy now, pay later take off and a lot of retailers are creating marketplaces within their own web shop. In all these cases, it points back to the need to make payments flow swiftly and securely through tokenisation.”

This article was published in The Paytech Magazine #09, Page 46-47