The Clearing House, the oldest banking association in the U.S., is hoping to provide a solution for some of the newest issues facing payments, namely, how to handle consumers' information in a world of digital wallets.
TCH announced it will be developing a "dynamic credentialing solution" aimed at protecting account and payment data by "reducing storage of sensitive information, such as a customer's card number, across multiple retailers, virtual wallet providers and others." Instead of storing and passing along actual account numbers, opening those accounts to theft and fraud, merchants and payment service providers would pass randomly-generated numbers, or tokens, during transactions. The actual account numbers would all remain protected behind banks' security.
Tokenizing data, or providing a dynamic credential, is not a new idea, but what may make the TCH effort special is the scope and scale of what The Clearing House is: an organization of 22 of the largest banks in the world that collectively handle nearly half of the transactions that run across the automated clearing house network. That's more than $2 trillion a day in payments and fund transfers.
"The development of an innovative, safe and sound solution for digital payments is a natural evolution for The Clearing House," said The Clearing House President and CEO James Aramanda. "For 160 years The Clearing House has focused on the safety and security of payments for all Americans. First with the development of a central clearing house, then the paper check, followed by electronic payments, and now it is ready to ensure digital payments safety and security for future generations."
Details on the pilot program were scant, but TCH said it will test the ability to use mobile devices to make a purchase within a mobile wallet and at the point of sale, meaning both online and off. It will also test whether or not the solution will scale appropriately, an important consideration and one that hasn't warranted much attention since current digital wallet solutions have met with only modest adoption.
TCH said the actual customer experience of digital payments will be unaffected as the pilot is focused on the "behind the scenes" of a digital payment transaction. It will, however, affect the way consumers view mobile payments by making them more safe and secure.
"Financial institutions have always been the stewards of safe and sound payment systems," said Richard K. Davis, chairman, president and CEO of U.S. Bancorp and chairman of The Clearing House, "As an industry, we want to do what we can to ensure that privacy and fraud protection are built into all types of digital payments."
While it's one thing to announce that major U.S. banks are piloting a new data standard to protect consumers, it's quite another to expect that standard, regardless of the power of the institutions behind it, to be readily adopted.
And that will be the next challenge for TCH: convincing stakeholders, especially merchants, that it's in their best interest to adopt another new standard while they're already facing a radically shifting payment landscape that has given them EMV migration, PCI compliance, digital wallets and more in the past few years.
TCH said it will provide updates on the pilot program as it develops.
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