Quick Thoughts – MCX to Work with Paydiant on Tokenization to Improve Security


The Target data breach has probably pushed back the launch date for MCX pilots to the second half of 2014.

It must be hard for merchants to stomach since, while consumers associate the breach with a failure of security at Target, the deeper cause is the network delay in implementing EMV technology and tokenization in the US; this has made the US a soft target for hackers relative to other geographies where chip-and-PIN is the standard. Network ambivalence over EMV is, in turn, related to the fact that Visa makes money from issuers by selling risk management services to address the innate fraud content of a system reliant on a mag-stripe for data storage (like a cassette audio-tape) and on a rarely-inspected handwritten scrawl for authentication.

Yesterday, MCX announced that it will work with Paydiant (a private company specializing in mobile payment and loyalty programs with clients including Subway) for a cloud-based solution to customer-authentication that will integrate with the authorization, routing, and settlement infrastructure being developed for MCX by FIS. We expect Paydiant to implement a “tokenized” solution for MCX so that data stolen from POS terminals will not be useful to criminals. It is ironic that merchants are now likely to be first-to-market with a tokenized solution that should provide customers with assurance around security; this is important since customers will need to trust MCX enough to provide checking account details.

More broadly, the deal with Paydiant (as well as the announcement that Wendys has joined the consortium) suggests MCX is looking to the QSR segment to onboard consumers to its platform; as SBUX has demonstrated, mobile payments fit will with into the routine of a fast, daily-spend QSR customer. We expect Paydiant also to help MCX merchants integrate payments and loyalty programs; Paydiant co-founder, Chris Gardner, has been clear that mobile is not just about payments: “This is the most important thing about mobile for any retailer – mobile is a marketing platform. Payment is a piece of it, but marketing is how you win”.

We continue to believe MCX will be a transformative force in US payments, will take meaningful share from Visa and MasterCard, and will represent a significant growth opportunity for FIS. Please see our published research for more detail:

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