What is Scheme Tokenisation and why it could save you thousands
How Scheme Tokenisation moves your card token to Visa or Mastercard and shifts transactions into cheaper interchange categories.
Scheme Tokenisation is a relatively new offering in the payment landscape. Tokenisation is a way to store card details securely to avoid, or greatly minimise, the PCI compliance obligations of a merchant. Traditionally, when a card is tokenised, that token is held by the payment gateway. Scheme Tokenisation moves the holding of that token from the payment gateway to the Schemes (Visa or Mastercard).
How does that save you money?
Many Enterprise clients have a pricing structure where they get charged the ‘Interchange Fee’ for every card purchase. There are many different interchange categories, which you can view on Visa’s and Mastercard’s websites. A premium card may have an interchange rate of 0.88%, while a basic debit card may cost 0.22%. For Enterprise clients, interchange fees make up the largest cost portion of a payment, so any way to reduce them means real savings.
So how can these costs be reduced? If we started selling only to non-premium card holders, we could reduce it that way — but that’s not in a business’s control; most can’t control what card their customers pay with. What a business can do is tokenise their customers’ cards with the Scheme — implement Scheme Tokenisation.
Scheme Tokenisation reduces interchange costs by changing the ‘card category’ used for a transaction. Visa and Mastercard have a range of card categories in their interchange lists labelled with the word ‘Tokenized’. These ‘Tokenized’ categories have lower fees. Below are a few examples.
Before: no Scheme Tokenisation
| Scheme | Interchange category | Rate (incl GST) | Txn size | Interchange cost |
|---|---|---|---|---|
| Visa | Credit Card – Business Rate | 0.781% | $300 | $2.34 |
| Visa | Debit – Standard Rate | 0.220% | $300 | $0.66 |
| Mastercard | Credit – Consumer Elite, Card Not Present | 0.880% | $300 | $2.64 |
| Mastercard | Debit – Card Not Present | 0.220% | $300 | $0.66 |
| Total (4 transactions) | $6.30 |
After: the same cards, with Scheme Tokenisation
| Scheme | Interchange category | Rate (incl GST) | Txn size | Interchange cost |
|---|---|---|---|---|
| Visa | Credit Card – Tokenized Online | 0.231% | $300 | $0.69 |
| Visa | Debit – Tokenized Online | 0.110% | $300 | $0.33 |
| Mastercard | Credit – Consumer Elite, Tokenised Online | 0.715% | $300 | $2.15 |
| Mastercard | Debit – Tokenised Online | $0.04 flat | $300 | $0.04 |
| Total (4 transactions) | $3.21 |
In the above four transactions, interchange costs almost halved. Now put that into context for a business doing tens or hundreds of millions of dollars in online payments — the savings add up quickly to many hundreds of thousands.
So why don’t more businesses know about it?
The main reason is that not all the banks and their gateways can do it. So your friendly banker is unlikely to be mentioning Scheme Tokenisation — because they’re unable to accommodate it.
If you’d like to hear more about how I can help your organisation get the benefits of Scheme Tokenisation, please get in touch.