What is a Smart Token?

In Featured, Insights, Loyalty and Rewards, Technology, Tokenization by Jay Welch

Smart tokens are revolutionizing the mobile wallet—they’re not only changing the way we pay, they’re changing the way we think about transactions.

Early efforts in digital payments focused solely on moving payments from plastic to mobile. By adding a critical layer of security to NFC transactions, first-generation tokenization helped make that shift possible.

But while having all the functionality of your credit card right on your phone is certainly convenient, it wasn’t enough to convince consumers to make the switch to mobile payments en masse. In order to change their behaviour, and risk the embarrassment of using (or, heaven forbid, misusing) a new technology, there needs to be something in it for the user. That’s where smart tokens step in. These programmable tokens introduce custom parameters and value-added services to create an enhanced user experience that is poised to push digital payments over the tipping point.

Just What Is a Smart Token?

Traditional tokenization is a technology that—in the crucial moment of vulnerability when an NFC device transmits a primary account number (PAN) to a point of sale—replaces that sensitive PAN with a token PAN of no intrinsic value. Simply put: sensitive data is replaced with a non-sensitive data equivalent. That token PAN expires after a designated time, so the actual card number isn’t at risk of exposure.

Second generation tokens—or Smart Tokens—use logic and code to step way beyond just security. They add additional parameters to that token and bring intelligence to the transaction.

Instead of just being programmed to expire after a certain time, it can be programmed to work only with certain vendors, during certain hours, up to certain dollar amounts or for certain items—the possibilities for parameters are endless.

Value-Added Services, Brought to You by Smart Tokens

It means for the first time, issuers can insert value-added services (VAS) right into the transaction.

Imagine the convergence of real-time in-app services with everyday payment activities, where personalized and contextual factors can drive enhanced transactions—both in-store and online. A merchant could instantly issue a retail credit, a targeted offer or push the user to redeem loyalty points in real time. As broader tech trends like social and conversational services along with AI and Machine Learning become ever more prevalent, there are even more opportunities to deliver enhanced and value-added experiences through programmable payments.

The potential is vast, and it’s a future we’re excited to be enabling at Carta.

Want to know more about Smart Tokens? Download our whitepaper:
Smart Tokens: How Programmable Payments Will Revolutionize the Mobile Wallet to get the full picture.