Financial inclusion supports inclusive development and is a key enabler for many of the United Nations Sustainable Development Goals (SDGs). While progress has been made to advance the financial inclusion of the world’s young people (aged 15-24), a recent report by OECD shows that almost half are still financially excluded.

In fact, less than 37% of youngsters in sub-Saharan Africa are financially included in the formal banking sector.

Currently, Nigeria's population stands at more than 217 million, according to the Worldometer. The youth accounts for 70 percent of the 217 million, which stands at a huge 151 million youths. Interestingly, the millennials are the largest adult generation in the country with spending power, giving them the largest buying power of any generation.

While many are already reaching their mid-30s, banks have largely left millennial banking habits out of the picture when developing marketing strategies. Some of the technologies and financial services that young people are increasingly opting for include e-wallets, app-based banking, QR-code based mobile payment systems, mobile apps, and mobile money.

Now you understand why the partnership among Interswitch, Mastercard, Thales Group and Providus Bank that led to the launch of tokenization and digitization initiative to the Nigerian market is crucial. Tokenization is a generalized concept of a cryptographic hash. It means representing something by a symbol (‘token’).

The mobile-first generation, internet savvy and app-based service consumers now have limitless opportunities to be financially inclusive and empowered. The solution allows Providus Bank cardholders to make use of tokenized transactions online and perform ‘contactless’ tap-to-pay transactions via their mobile devices and wearables.

By combining the powers of Interswitch and Thales, Providus Bank, for instance, would plug to Mastercard Digital Enablement Service (MDES) to offer consumers, merchants, and financial institutions the much-needed capability for making a payment without touching a physical device at the point of sale.

Thales’ Trusted Service Hub (TSH) solution is powering up the connection to the Mastercard MDES platform in order to launch on the Providus Mobile application and eMerchants.

On behalf of Providus, Thales TSH is managing the flow and internal logic put in place to digitize the card, manage its lifecycle, and then use it to make payments.

Why Tokenization is Key in Today’s Banking Sector

• Curbing fraud

One of the greatest issues faced in the banking sector is how to innovatively curb fraud and reduce data risk with simple, secure and scalable solutions. A Nigeria Inter-Bank Settlement System Plc (NIBSS) report released in August last year showed that eight deposit money banks in the country lost a total of N1.9bn as a result of fraudulent incidents in 2020.

The report also revealed that ATM, internet banking, mobile and impersonation fraud cases cost the banks N830.1m, N37.7m, N16.2m, and N989,700, respectively.

Therefore, companies like Interswitch have taken up the challenge to build the future of protected payments. Tokenization is a major asset when considering data protection.

Tokenization solution improves transaction security by replacing sensitive account information, such as the 16-digit account number, with a unique digital identifier called a token. Simply put, fraud is contained across the digital ecosystem by turning primary account numbers (PANs) into digital tokens.

• Securing payment file

Card-on-file is the process of collecting initial card data to store and use for recurring payments, for example. During the card-on-file process, tokens are requested and stored instead of credit card data. At each renewal period, the system will automatically send the tokens to the token gateway and charge the right account via de-tokenization. This is another sure way to increase data protection in the payment industry.

• Tokenization will reduce false declines

In some cases, false decline occurs when a genuine customer within their spend limit cannot consumate an online transaction. The reasons behind this are complex and the error messages are usually generic. It has been proven that Network EMV tokenization reduces such false positives. Therefore, uninterrupted lifecycle management of network tokens provides additional visibility for the potential to increase approval rates and reduce false declines.

• All EMV transactional data will be tokens

The actual trend in the EMV tokenization is that all transaction data will become tokens! Not just the Primary Account Number or related card data. In other words, you should expect an end-to-end solution with robust customer service capabilities.

• Banking in the 5G era

5G has been launched in Nigeria, ushering in an era of Internet of Things (IoT), smart homes, smart transportation, smart health, smart agriculture, amongst others. With the amount of speed 5G brings, it is important that payment for subscriptions to IoT services and the likes must be protected. We are talking about cybersecurity in the payment system. So, tokenization is at the heart of connected devices (protection) and will allow users carry out financial transactions using their electronic devices or payment cards knowing that such transactions are safe and secure.

Are there Challenges with Tokenization?

First, tokenization is not trivial. It is erroneous to believe that tokenization is elementary and an average programmer could create a hash function that will transform any sort of information into tokens. The design issues that challenge a good token generation service include: the token vault where the dictionary information/token is maintained must be secure. If not, there is no real point in the whole tokenization process.

It must be collision-free otherwise there will be a risk that the wrong account may be charged in lieu of the right one!

Speed is also key. The token generation and comparison in the vault should be fast and tokens should not be able to be corrupted by hardware or electrical faults.

This is just an overview of the potential challenges created by a token generation service. Evidently, the teams at Interswitch, Mastercard, Thales and Providus Bank understand these challenges and have acquired a good grasp of mitigating against them.

Jonah Adams, Managing Director, Digital Infrastructure and Managed Services, (Systegra) explained that the collaboration that birthed the tokenization was crucial, as it opened up realms of possibilities in the payments ecosystem, not only within Nigeria but in Africa as a whole.

Babatunde Okufi, Group Head, Business Development, Purepay, also emphasized the need for fintechs and financial institutions to design more innovative and intuitive solutions that keep the funds and data of end users safe.

In his words, “The emergence of COVID-19 shifted consumer behaviour. And as more consumers get on the digital payments train, there will equally be more fraud cases. Fraudsters innovate, and players in the payments space should also innovate to ensure that they gain higher grounds on these cyber attackers.”

Okufi noted that to curb the prevailing cases of e-fraud, rules have been instituted. These rules include the introduction of transaction limitations, leveraging Artificial Intelligence (AI), and effective fund transaction tracking between sender and receiver.

Frank Atat, Divisional Head, eBusiness, Providus Bank, in his submission proffered those partnerships between key stakeholders remain crucial in helping to improve payment convenience and reduce cyber threats through the deployment of cyber tools.

Echoing Atat’s sentiments was Peter Ehizogie, Regional Manager, Product Sales-Cyber & Intelligence Solutions (West Africa), Mastercard, who said that consumers would naturally gravitate towards digital payments once they are able to trust payment platforms with their funds.

“Collaborations between players in the payments space will aid the widespread adoption of digital payment, and this can only be achieved when we have gained the trust of these consumers,” Ehizogie said.

Conclusion

The COVID-19 pandemic experience resulted in a consumer behavior shift. It has also caused reduced interaction with cash. As technology and digital innovators, Interswitch, Mastercard and Thales Group have introduced a cost-effective, efficient and reliable solution – tokenization – in the Nigerian banking sector, Providus Bank has adopted the solution and there are expectations that the benefits will spread to all stakeholders in the economy.

The innovation behind the MDES tokenization and digitization solution seeks to contribute to a cashless society that works for everyone. From all indications, tokenization is a major asset for the banking sector, particularly when considering its data protection capabilities. However, it is not the same technique as encryption and must be considered to be used in addition to encryption in banking transactions. Our joy is that tokenization is a very efficient way to prevent the leakage of credit card data, especially PANs, and its propensity for data protection.