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Tokenization of Retail Payments in Canada

  • Report

  • 100 Pages
  • September 2019
  • Region: Canada
  • Technology Strategies International
  • ID: 4846258

Tokenisation: A High Stakes Game for Stakeholders

Why this report is Important for your Organization

Retail Payments Tokenisation is important for your organization’s future as an online merchant, payment processor or issuer. Regardless of whether or not your business takes an active or passive role in tokenization, your business success will be impacted either positively or negatively (or both) by tokenization.

Tread with caution, but don’t delay in developing your tokenization strategy. Significant benefits from tokenization extend well beyond the obvious benefits of increased security for payment transactions. Tokenization enables a new generation of payment fraud control tools and provides a gateway into fintech and other value-added services.

Merchants, issuers, and processors will all incur increased costs as a result of tokenization. Tokenisation as currently structured by the card networks, also represents a significant potential for disintermediation from your customers. The risks to merchants, processors, and issuers from tokenization can be mitigated and the benefits can be maximised, through a thorough understanding of the realities of retail payments tokenization and the proper implementation of a tokenization plan.

This Navigation Report provides a critical assessment of the real value, opportunities, shortcomings, and implications of entering into a tokenization program. As a result, your organization is provided with essential guidance for your tokenization business case, and recommendations for action by issuers, merchants and payment processors.


Tokenization of payments will have a profound impact on retail credit, debit and prepaid payments. The fundamental relationships between card networks, issuers, merchants, application providers, payment processors, and cardholders are changing in a tokenized payment world. Key stakeholders are positioning themselves for their new roles in this new world of payment tokens. While tokenization provides immense opportunities for players in the payments ecosystem, navigating this terrain is complex and fraught with risks and challenges.

In-depth Insight

This comprehensive and independent Navigation Report provides compelling insights that address three key areas critical to building a successful business case for tokenization:

  • What are the business, service and strategic opportunities and impacts of tokenization for merchants, issuers and payments solution providers?
  • How should different players respond to the drive towards tokenization?
  • What are the key considerations that cannot be overlooked in developing the business case for tokenization?

About the Report

The report provides essential guidance and direction for the tokenization business cases of Canadian issuers, merchants and payments service providers. It examines payments tokenization from the business perspective of the key players in the payments ecosystem and provides a critical assessment of the real value, challenges and implications of establishing or participating in tokenization programs.

The report addresses the following important areas:

  • Unique Canadian history and approach to Tokenization
  • Types of tokens and their lifecycles
  • Stakeholder specific tokenization roles, responsibilities, fees and costs
  • Compliance and standards applied to tokenization
  • Future developments in tokenization technology
  • Challenges with card scheme tokenization programs
  • Stakeholder specific business cases and roadmaps to proceed with tokenization

Thirty-two Action Advisories provide essential guidance for business case development.

Key Questions Answered

  • Who will be doing what in the tokenization of the card number? - The answer is both complicated and surprising
  • Who controls the link between the token and the ‘real’ number? - New stakeholders and roles are being introduced into the payments ecosystem
  • Whose rules and standards will apply to tokenization in Canada? - There is a new compliance regime around tokenization with some unique Canadian twists
  • Who is charging whom for tokenization services? - While fraud costs may be reduced, somebody has to pay the additional tokenization services costs
  • What does the card holder (as the ultimate consumer) think of all this? - Does the cardholder perceive tokenization as a solution, and does the consumer’s perspective matter? This answer is also complicated and surprising.

Essential Reading

This Navigation Report was written from a business perspective. It is designed to provide the necessary insight for issuers, processors, and merchants to identify a way forward in their tokenization strategies and product plans. If your organization is looking for a path through the minefield in retail payments tokenization, then this Navigation Report and its 32 Action Advisories is part of your essential reading.

Table of Contents


  • DIAGRAM: High Stakes for Stakeholders
  • Introduction
    • Navigation Report Organization
    • Research Methodology
  • WHAT is Tokenisation in the  Canadian Context?
    • A Short History of Payments Tokenisation
    • The Game of Stakeholders  
    • Definitions
    • Key Terms
    • Payment Token Types
    • DIAGRAM: Taxonomy of Token Types
    • Payment Token Lifecycle
    • DIAGRAM: Token Lifecycle Stages  
    • Whose Standards?
    • DIAGRAM: Tokenisation Compliance Hierarchy
    • Payment Tokens in Canada
    • DIAGRAM: Canadian Payments Tokenisation Timeline
    • The Players in the Game
    • Account Holder
    • Why This Is Important
    • Token Requestor
    • Why This Is Important
    • Merchant
    • Why This Is Important
    • Processor
    • Why This Is Important
    • Token Service Provider
    • Why This Is Important
    • Issuer
    • Why This Is Important
    • Settlement Network
    • Why This Is Important
    • The Six Party Model  
    • DIAGRAM: Tokenisation Stakeholders  
  • WHO Plays What Roles in Tokenisation?
    • An Overview of Stakeholder Processes
    • Stakeholder Diagrams
    • Stakeholder Roles in Token Requesting
    • DIAGRAM: Token Requesting Roles  
    • Issuer
    • Why This Is Important
    • Requestor  
    • Why This Is Important
    • Service Provider
    • Why This Is Important
    • Stakeholder Roles in Token Provisioning  
    • DIAGRAM: Token Provisioning Roles
    • Service Provider
    • Why This Is Important
    • Issuer
    • Why This Is Important
    • Requestor  
    • Why This Is Important
    • Stakeholder Roles in Token Processing
    • DIAGRAM: Token Processing Roles
    • Merchant
    • Why This Is Important
    • Processor
    • Why This Is Important
    • Service Provider
    • Why This Is Important
    • Stakeholder Roles in Token Business Data
    • DIAGRAM: Token Business Data
    • Requestor  
    • Why This Is Important
    • Issuer
    • Why This Is Important
    • Processor
    • Why This Is Important
    • Service Provider
    • Why This Is Important
    • TABLE: Active Support Roles Required for New Token Related Data
    • Stakeholder Roles in Standards and Compliance
    • DIAGRAM: Compliance Responsibilities
    • Service Provider
    • Why This Is Important
    • Merchant
    • Why This Is Important
    • Issuer
    • Why This Is Important
    • Processor
    • Why This Is Important
    • TABLE: Required Registrations or Certifications for Scheme Settlement
    • Stakeholder Roles in Token Security
    • DIAGRAM: Key Risk and Liability Chain
    • Requestor  
    • Why This Is Important
    • Service Provider
    • Why This Is Important
    • Issuer
    • Why This Is Important
    • Merchant
    • Why This Is Important
    • TABLE: Key Additional Stakeholder Security and Control Demands
  • WHY should a Stakeholder Consider Tokenising?
    • Stakeholder Tokenisation Fees and Costs
    • DIAGRAM: Summary Fees and Costs
    • Issuer
    • Why This Is Important
    • Merchants
    • Why This Is Important
    • Processor
    • Why This Is Important
    • Service Provider
    • Why This Is Important
    • TABLE: Fees for Payments Tokenisation Services
    • Evolving Stakeholder Roles in Payments Tokenisation
    • DIAGRAM: Larger Stakeholder Roles
    • Settlement Network as Token Service Provider
    • Why This Is Important
    • Issuer as Token Service Provider
    • Why This Is Important
    • Issuer as Requestor
    • Why This Is Important
    • Processor as Token Service Provider
    • Why This Is Important
    • Combined Token Requesting and Provisioning
    • Why This Is Important
    • Merchant as Token Requestor  
    • Why This Is Important
    • TABLE: Permutations in Payments Tokenisation Services
    • Tokenisation is Part of a Larger Payments Evolution
    • Features of the Scheme Token Services Offerings
    • TABLE: Scheme Tokenisation Comparative Features
    • Potential Upsides and Downsides
    • DIAGRAM: Stakeholder Wins from Tokenisation
    • Merchants
    • Processors
    • Issuers
    • Schemes
    • Token Requesters
    • Hubs and Gateways  
  • WHERE is the Business Case for Tokenisation?
    • A Solution in Development
    • New Stakeholders
    • Network Latency
    • PAR Integration
    • End Market View
    • Merchant Business Case
    • Back End Settlement
    • Third Party Solutions
    • Data Security
    • Supported Use Cases
    • Beyond Mobile  
    • Stakeholder Business Case Factors
    • The Merchant’s Business Case  
    • The Issuer’s Business Case
    • The Processor’s Business Case  
    • The Next Generation of Tokens
    • True Token Interoperability  
    • True Token Hierarchy
    • Vaultless Tokens
    • Multi Funded Tokens
    • Even Smarter Tokens
    • Multi Purpose Tokens
    • Internet of Things 2.0
    • Tokens Everywhere
    • DIAGRAM:  The Evolution of Payments Tokenisation
    • The End of Payment Tokens?
    • Merchant, Issuer and Processor Paths to Success in Tokenisation  
    • Opportunities and Risks
    • Questions to Ask about Tokenisation
    • Questions Merchants Need to Ask
    • Questions Processors Need to Ask
    • Questions Issuers Need to Ask  
    • DIAGRAM: Merchant Stakeholder Tokenisation Decision Tree
    • DIAGRAM: Processor Stakeholder Tokenisation Decision Tree
    • DIAGRAM: Issuer Stakeholder Tokenisation Decision Tree  
  • WHEN is the Canadian Market Ready for Tokenisation?  
    • A Market Perspective
    • Global Market Interest  
    • Drivers for Market Uptake
    • The Importance of Consumer Buy In
    • Digital Payments in Canada  
    • CHART: Forecast Number of Payment Transactions by Payment Instrument Type
    • Online Payments
    • CHART: Forecast Volume and Value of Online Purchases in Canada
    • Mobile Payments  
    • CHART: Perceptions of Security of Payment Information on Smart Phones
    • CHART: Forecast Volume and Value of In-Store Mobile Payments in Canada
    • Canadian Consumer Perspectives on Tokenisation  
    • CHART: Consumer Perceptions About Payment Security
    • Does the Canadian Consumer Perceive a Problem in online Payments Security?
    • Is the Canadian Consumer Willing to Share Credentials Data?
    • CHART: Level of Concern at Having Payment Information Stolen
    • Does the Canadian Consumer Trust the Tokenisation Solution Providers?
    • Is there an Untapped Market for Online Payments?
    • Who Does the Canadian Consumer Trust for Payment Services?
    • CHART: Trust in Different Types of Organizations Involved in Payments
    • Who Does the Canadian Consumer not Trust for Payment Services?  
    • Potential Market for Canadian Tokens
    • Billions of Retail Payment Tokens
    • Market Segmentation
    • Early Adopters
    • CHART: Perceptions of Different Adopter Groups
    • Millennials
    • CHART: Payment Security Perceptions of Millennials  
    • Other Demographic Groups  
    • Approach to Segmentation
    • Payment Account Reference
    • Merchant and Bank Issuer Compliance
    • Smart Token Multi Domain Logic  
    • Payment Tokens as Securities
    • Tokens and Issuer Fraud Control  
    • Understanding by End Consumers
    • Merchant Uptake as Requestors  
    • Scheme Merchant Token Services
    • Cross Border Tokenisation

Action Advisories


  • ACTION ADVISORY 1: Txns. Can Qualify for Settlement without Scheme Tokens
  • ACTION ADVISORY 2: Plan for the Long Term in Token Services
  • ACTION ADVISORY 3: Evaluate Potential Multiple Roles in Token Services
  • ACTION ADVISORY 4: Monitor Changing Tokenisation Compliance Requirements
  • ACTION ADVISORY 5: Be Aware of the Stakeholders in the Tokenisation Driver's Seat  
  • ACTION ADVISORY 6: Stay Aware of the Rapidly Changing Marketplace for Tokenisation
  • ACTION ADVISORY 7: Don't get Disintermediated as a result of Tokenisation
  • ACTION ADVISORY 8: Decide if you Want to Compete with the Schemes
  • ACTION ADVISORY 9: Leverage the Difference Between Token Issuing and Provisioning
  • ACTION ADVISORY 10: Position Tokenisation in a Larger Enhanced Services Strategy
  • ACTION ADVISORY 11: Do Not Ignore Tokenisation as It is More Than Just a Standard  
  • ACTION ADVISORY 12: Be Aware of the Opportunities and Costs in Tokenisation  
  • ACTION ADVISORY 13: Issuers Evaluate Tokenisation as a Risk Management Strategy  
  • ACTION ADVISORY 14: Processors Decide on an Active or Passive Strategy
  • ACTION ADVISORY 15: Plan for Additional Data Fields Resulting from Tokenisation
  • ACTION ADVISORY 16: Be prepared for Increased Compliance Complexity
  • ACTION ADVISORY 17 Plan for Change in Responsibilities and Liabilities Under Scheme Rules  
  • ACTION ADVISORY 18: Your Business Case Must Address New Token Fees and Costs
  • ACTION ADVISORY 19: Compete by Extending Across Multiple Stakeholder Roles
  • ACTION ADVISORY 20: Leverage Your Core Strengths into Tokenisation Services  
  • ACTION ADVISORY 21: Design for a Future with a Wider Role for Tokenisation
  • ACTION ADVISORY 22: Be aware of Differences in Scheme Programs
  • ACTION ADVISORY 23: Merchants Confirm Your Tokenisation Market Benefits
  • ACTION ADVISORY 24: Processors Define your Token Service Value Adds  
  • ACTION ADVISORY 25: Issuers Identify the Impact on your Systems and Processes
  • ACTION ADVISORY 26: Stakeholders should Avoid Long Term Outsource or In-house Commitments
  • ACTION ADVISORY 27: Decide if you are an Early, Late or 'Mid Adopter' of Tokenisation  
  • ACTION ADVISORY 28: The Merchant Business Case for Tokenisation is not Clear
  • ACTION ADVISORY 29: Issuers Evaluate Tokenisation from a Strategic Perspective
  • ACTION ADVISORY 30: Leverage the Increasing Capabilities of Tokens
  • ACTION ADVISORY 31: Move Past the Hype in Your Tokenisation Timeline
  • ACTION ADVISORY 32: Confirm the Value Proposition before Committing

Key Market Findings


  • MARKET FINDING 1 For Consumers, Tokenisation may be a Solution in Search of a Problem
  • MARKET FINDING 2 Tokenisation May Have Greater Perceived Value to the Less Technical
  • MARKET FINDING 3 There is a Challenge of Consumer Trust in Third Party Services
  • MARKET FINDING 4 Consumers are More Comfortable with the Security of Physical Merchants
  • MARKET FINDING 5 Tokenisation may Help Unlock New Online Payments Markets and Online Transaction Growth
  • MARKET FINDING 6 Canadian Banks are Best Positioned to Promote Tokenisation
  • MARKET FINDING 7 Mobile Wallets and Social Networks have a Market Trust Challenge
  • MARKET FINDING 8 A Number of Market Segments are Available for Targeting by Stakeholders



Executive Summary

Payment Networks Using Tokenisation to Extend their Reach and Control

Tokenisation has become an important component of enabling secure payments in Canada, and the payment networks are using tokenisation to extend their reach and control over the payments ecosystem, according to this in-depth analysis. The report, titled Retail Payments Tokenisation in Canada – The Paths to Success for Canadian Payments Stakeholders, highlights the dominant roles currently being played by established payment networks, namely, Visa, MasterCard and to a lesser extent, Interac, and suggests that issuers, processors and merchants should look carefully at the impact that this will to have on their business since there are significant implications in terms of operations, marketing and compliance.

“There is no doubt that tokenisation can be a powerful tool in controlling fraud in Canadian retail payment transactions. However, merchants, processors and issuers need to fully understand the significant impacts tokenisation will have on their role in the Canadian payments ecosystem, and to plan accordingly” says Mike Vaselenak of VCS Technologies Inc., a 35-year veteran in Canadian payments and the lead author and analyst for the Navigation Report.

“There are a number of additional opportunities that arise as a result of tokenisation, for example, leveraging it into new products and services, but by the same token there are significant threats of disintermediation.”

The report says that the benefits associated with tokenisation often tend to be strategic in nature. As a result, they tend to be longer-term and in some cases are more difficult to quantify. The costs, on the other hand, tend to be operational and developmental, and therefore more immediate.

“The business case for tokenisation is complicated by fact that there is no clear and direct revenue stream from consumers to stakeholders in the payments ecosystem for adopting tokenized payments,” says Christie Christelis, President and co-author of the report. “Consumer awareness of what tokenisation is and what the benefits might be is, not surprisingly, largely non-existent and this is exacerbated by the fact that most consumers realize that, for the most part, they have zero liability for fraudulent use of their payment instruments.”

The report goes on to point out that the traditional four-party model for payments is being supplemented by additional services in a tokenised payments world, and describes a six-party model that is more representative of the new paradigm. This model provides opportunities for introducing additional services where new business models can be developed based on the careful design of tokenisation offerings that optimize the mix of in-house, payment scheme and third-party services.

“Stakeholders that are considering implementing or supporting tokenised transactions need to identify the true capabilities and shortcomings of tokenisation as it is currently being offered in Canada, and how those capabilities and shortcomings relate to their organization’s business objectives,” Vaselenak says. “Tokenisation of retail payments in Canada adds an additional level of complexity to the Canadian payments processes and the role of legacy payments stakeholders.”

Other key findings from the report include:

  • Tokenisation technology is evolving rapidly, with payments tokenisation platforms pushing into non-payment credentials areas
  • Tokenisation will help unlock new online payments options and stimulate secure online transaction growth
  • Canadian banks are the best positioned to promote tokenisation

Retail Payments Tokenisation in Canada – The Paths to Success for Canadian Payments Stakeholders is a Navigation Report that presents an in-depth and independent assessment of retail payments tokenisation in the Canadian context. It provides essential guidance for merchants, processors and issuers who are keen to understand and develop the real business case for retail payments tokenisation. It identifies the market, systems, operations, compliance, data, risk, security and cost implications for stakeholders when implementing tokenisation in Canada.

The report:

  • Includes a history of payments tokenisation in Canada
  • Defines the key tokenisation concepts, processes, stakeholder roles and futures from a business perspective
  • Identifies the cost and risk drivers associated with tokenisation
  • Outlines the features and implications of the Visa, MasterCard and Interac tokenisation offerings
  • Provides business cases and decision trees for merchants, processors and issuers contemplating tokenisation.
  • Provides a unique Canadian specific end consumer market survey and perspective on attitudes regarding comfort with mobile payments, trust in payments stakeholders, attitudes toward payments security, and market segmentation of the value proposition of tokenisation.

The 100-page Navigation Report contains 33 charts, tables and diagrams, 32 Action Advisories, and 8 Key Market Findings. The analysis was supported with research from over 100 information sources and drew on the findings of the 2017, 2018 and 2019 Canadian Consumer Payments Surveys conducted across a nationally representative sample of 2,000 Canadians each year.


Mike Vaselenak, the primary author of this report, has leveraged his three decades of experience and leadership in Canadian payments, coupled with in-depth research and interviews, to prepare this insightful Navigation Report. Focused interviews were conducted with participating card schemes, as well as leading Canadian and international experts on retail payments, payments security, and payment systems. The findings and conclusions were supported by the statistically valid Canadian Consumer Payments Surveys, which included consumers’ perspectives on retail online, physical and mobile payments as they apply to tokenization. 

This Navigation Report was developed using the following inputs:

  • Three decades plus experience of the author, in retail and business payments product strategies, planning, management, specification, development, operation, and management.  
  • Market analysis conducted
  • In-depth review of online commentary, review and analyses from approximately  100 payments experts, payments information services, regulatory agencies and card schemes (hereinafter, ‘schemes’ being Visa, MasterCard, Interac, Union Pay, Amex, Discover, etc.). The author is particularly grateful for the input of Alex Woda, Pierre Roberge, Guy Berg, and others
  • Review of key tokenization product developments, positioning, and strategies,
  • Review of technical standards and specifications from EMVCo, The Clearing House (hereinafter ‘TCH’), National Automated Clearing House Association (NACHA), Payments Canada, Visa, Mastercard, Amex, Interac, ANSI, and Payment Card Industry (hereinafter ‘PCI’)
  • Reviews of tokenization-related products, services, whitepapers and value propositions
  • The author’s presentations at conferences and follow up discussions.

The material and learnings from approximately 200 sources were distilled into a series of integrated perspectives on payments tokenisation, including:


  • The Canadian Market for Tokenisation,
  • Process Flows in Tokenisation,
  • Scheme APIs and Specifications for Tokenisation,
  • Visa, MasterCard, and Interac Tokenisation Program Comparative Matrix,
  • Stakeholder Roles in Tokenisation,
  • Strategic Perspectives for Tokenisation,
  • Tokenisation and Payments Security.