A new research report from Mercator Advisory Group, Payment Networks 2.0: The Battle for Tokenization, provides a deep dive into how network tokenization operates, starting with the EMVCo specification and a review of the Apple Pay implementation. It provides clarity regarding the technical challenges associated with implementing host card emulation (HCE) and identifies how tokenization will impact the payments value chain and how Apple Pay will impact Google, PayPal, MCX, and Softcard. “Expanding beyond the tightly controlled Apple Pay environment into the Wild West of the Android environment will take time,” said Tim Sloane, VP, Payments Innovation, and author of report. “Tokenization will change the payments industry in interesting ways. The networks have clearly carved out a new business model for themselves, and the implementation of tokens will enable payment providers to enter adjacent markets, such as identity management and loyalty management, if they wish. Indeed tokens offer so many growth paths that determining which path any individual payment provider will follow will likely consume corporate strategic thinking for the next few years.”

1. © 2011 Mercator Advisory Group 1

2. Payment Networks 2.0: The Battle for Tokenization
A new research report from Mercator Advisory Group, Payment
Networks 2.0: The Battle for Tokenization, provides a deep dive
into how network tokenization operates, starting with the EMVCo
specification and a review of the Apple Pay implementation. It
provides clarity regarding the technical challenges associated with
implementing host card emulation (HCE) and identifies how
tokenization will impact the payments value chain and how Apple
Pay will impact Google, PayPal, MCX, and Softcard.
2014 Mercator Advisory Group

3. 2014 Mercator Advisory Group
Tim Sloane
VP, Payments Innovation
Emerging Technologies
Advisory Service
Mercator Advisory Group
“Expanding beyond the tightly controlled Apple Pay
environment into the Wild West of the Android environment
will take time,” said Tim Sloane, VP, Payments Innovation,
and author of report. “Tokenization will change the payments
industry in interesting ways. The networks have clearly
carved out a new business model for themselves, and the
implementation of tokens will enable payment providers to
enter adjacent markets, such as identity management and
loyalty management, if they wish. Indeed tokens offer so
many growth paths that determining which path any
individual payment provider will follow will likely consume
corporate strategic thinking for the next few years.”

4. Highlights of the Report Include:
• Discussion of consumer behavior driving the growth of mobile payments
and aspects of it that provide merchants an advantage if the networks fail to
adjust their business models
• Analysis of EMVCo’s failure to deliver specifications sufficient to resolve
debit routing and ATM usage in its tokenization specification
• A detailed process flow for implementing tokenization for Apple Pay and a
process flow illustrating the challenges of managing a more complex
environment such as that of HCE
• A review of banks’ responses to Apple Pay so far and recommendations for
how banks should be responding to Apple Pay and tokenization going
forward
2014 Mercator Advisory Group

5. Highlights of the Report Include:
• A competitive analysis of how Apple Pay impacts major payment network
2014 Mercator Advisory Group
competitors
• A history of the long and winding road that finally brought tokens into the
network world
• How MasterCard and Visa have approached mobile payments over time
and how they will monetize tokenization using new business units for rolling
out token-based services
• A deep dive into the EMVCo Tokenisation Specification identifying key
components that will have a major impact on the roll-out of mobile
payments going forward, including new payment functions with merchant,
time, and spend restrictions and how these new capabilities might be tied to
the Internet of Things and beacons

6. Highlights of the Report Include:
• Why tokenization as currently implemented threatens the business models
of EFT network providers and issuing processors, including a chart showing
which business functions will be adopted by the networks, challenging the
existing business models of issuing processors
• The implications of tokenization on networks that have yet to announce how
they will respond, including American Express, Discover, and PayPal
• A discussion of why future standards are required if payments innovation is
to leverage consumer contextual information effectively
2014 Mercator Advisory Group

7. Figure 3: How Apple Pay Works
Merchant Acquirer Branded Network Network-Branded Issuer
7 8
Look up PAN
© 2014 Mercator Advisory Group
Source: Mercator Advisory Group
Token
Token
Token
Authorization Request
with Token
Authorization Request
with PAN
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5
6
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
PAN
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PAN
2
3

8. About the Full Report:
This report is 40 pages long and contains 8 exhibits.
Companies mentioned in this report include: Adaptive Path, Amazon, American Airlines,
American Express, Apple, AT&T, Bank of America, Capital One, Chase, Citigroup, Deutsche
Telekom, Discover, Dunkin’ Donuts, EMVCo, Facebook, Fast Identity Online (FIDO) Alliance,
Fiserv, Google, MasterCard, Merchant Customer Exchange (MCX), mFoundry, Microsoft, Monitise
Group, Navy Federal Credit Union, NYCE, PayPal, PNC, Secure Remote Payment Council,
Shazam, Softcard, Starbucks, The Clearing House, T-Mobile, TSYS, US Bank, USAA, Verifone,
Verizon, Visa, Wells Fargo, and Wendy’s.
Members of Mercator Advisory Group’s Emerging Technologies Advisory Service have
access to these reports as well as the upcoming research for the year ahead, presentations,
analyst access, and other membership benefits.
For more information and media inquiries, please call Mercator Advisory Group's main line: (781)
419-1700, send e-mail to media@mercatoradvisorygroup.com.
For free industry news, opinions, research, company information and more visit us at
www.PaymentsJournal.com.
Follow us on Twitter @ http://twitter.com/MercatorAdvisor.
2014 Mercator Advisory Group

9. About Mercator Advisory Group
Mercator Advisory Group is the leading independent research and advisory
services firm exclusively focused on the payments and banking industries. We
deliver pragmatic and timely research and advice designed to help our clients
uncover the most lucrative opportunities to maximize revenue growth and
contain costs.
Our clients range from the world's largest payment issuers, acquirers,
processors, merchants and associations to leading technology providers and
investors. Mercator Advisory Group is also the publisher of the online
payments and banking news and information portal PaymentsJournal.com.
2014 Mercator Advisory Group