Digital Payment Network Tokenization and Intermediary Removal
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Solution Overview
Problem
The increasing interchange fees in credit card transactions are discouraging the implementation of electronic payment mechanisms, leading to higher processing fees for merchants and an imbalance in competitiveness among financial institutions, while also increasing the risk of fraud due to the reliance on physical security features.
Innovation Solution
A digital payment network that eliminates the need for card association networks by using a mobile application and digital POS systems, encrypting user identities with virtual tokens, and reducing intermediaries in the payment process, thereby decreasing the risk of fraud and lowering interchange fees.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If physical cards and card association networks are used, then security features can be implemented, but interchange fees increase and fraud risk increases
Solution Approach 1:
The patent replaces physical card-based security mechanisms with a digital token system. Instead of relying on physical cards with magnetic stripes or chips, the system uses virtual tokens stored in a digital wallet on mobile devices. This substitution eliminates the need for physical security features while maintaining security through cryptographic tokenization, thereby reducing fraud risk associated with physical card theft or skimming.
Solution Approach 2:
The patent creates a digital copy or representation of the payment token that exists only in electronic form. The virtual token is a digital equivalent that replicates the function of a physical card without its physical vulnerabilities. This digital copying allows the system to maintain security functionality while eliminating the physical medium that enables certain types of fraud.
2Ease of operation
If card association networks and intermediaries are used, then payment processing can be facilitated, but interchange fees and processing costs increase
Solution Approach 1:
The patent extracts and removes the card association network intermediary from the payment processing chain. By implementing a direct digital token system between merchants and payment processors, the system eliminates the need for Visa, Mastercard, or other card network intermediaries. This extraction of the intermediary layer directly reduces the interchange fees and processing costs that these networks charge.
Solution Approach 2:
The patent introduces a new digital token system as an intermediary that replaces traditional card networks. Rather than using existing card association infrastructure, the system creates a new mediation layer based on digital tokens that can be processed directly by merchants and payment processors, thereby reducing dependency on traditional intermediaries and their associated fees.
3Adaptability or versatility
If physical cards are used, then customers can make purchases, but the system requires physical security features and hardware
Solution Approach 1:
The patent replaces the mechanical and physical components of card-based payment systems with a software-based digital token system. Instead of requiring physical cards, magnetic stripe readers, or chip readers, the system uses digital tokens stored in mobile device wallets and processed through software interfaces. This substitution dramatically simplifies the hardware requirements while maintaining payment capability.
Solution Approach 2:
The patent creates a universal digital token system that can function across multiple platforms and devices. The digital wallet application can operate on various mobile devices (smartphones, tablets, wearables), and the token system can be used for different types of transactions (in-person, online, contactless). This multi-functionality replaces the need for multiple specialized physical card types and their corresponding reading hardware.
Data Source
AI summary
The present system is a payment network that implements an ecosystem in which banks can issue financial products (e.g. credit cards, debit cards, and the like) and customers are able to pay in any commerce without the need for card association networks. The streamlined nature of the system allows interchange fees to be substantially reduced over current systems. In addition, the system is all digital, so that physical security features are not required. The system provides an application for a customer that can be used on a mobile phone or other computing device, downloadable point-of-sale (POS) applications that can be used for commerce, and a web based POS application for commerce. The customer application includes a marketplace and an e-wallet in one embodiment. The customer can use the marketplace to acquire and link financial products produced by the banks with the customer's e-wallet.