Expert Opinion: Tokenization sets the stage for connected future of payments

Shopping from the comfort of a sofa is just as common today as visiting the mall was 25 years ago, and by 2021, e-commerce is expected to become the largest retail channel in the world (Euromonitor). The ease of hitting the “buy” button, from any connected device or on the go, has forced technology to keep pace with the shifting retail landscape.

As the digital revolution created new and expanded opportunities to make payments, it also brought uncertainty around how to better protect transactions without the physical presence of a card or shopper. Introduced to help create a more secure digital payment environment, tokenization technology has changed the security landscape and set the stage for the explosive growth of frictionless digital payments. 

Merchants generally offer several payment options for shoppers at checkout, however consumers are often repeatedly tasked with entering their personal information and card number before completing a transaction. Transactions supported by tokenization help issuers seamlessly update customer card details if a new card has been issued due to expiration, loss or theft.

With tokens, customers who have an expired card on file with a retailer can avoid late payments and potential fees from missed billing cycles, eliminating a significant point of friction for both consumers and merchants.

Tokenization Momentum

The success of tokenization is evident, but the payments ecosystem has only just begun to reap its benefits.Tokens protect millions of cardholders worldwide when shopping online, with security as one of the top three reasons consumers choose to pay via connected devices. Merchants have also realized higher authorization rates by as much as 3% points (Source: VisaNet, Jan-March 2019) and fraud reduction by as much as 67% when utilizing tokens as opposed to PANs (Source:VisaNet, Jan-Dec 2018), ultimately reducing retailer costs and customer inconveniences. 

Eye Toward the Future

As e-commerce approaches an inflection point of surpassing brick and mortar sales, it’s imperative to understand how tokenization is leading us into the future of payments. From connected everything to biometrics and voice payments, tokenization is designed to increase security across payment channels. 

Examples of what tokenization will enable in the future include:

• Connected Cars: Soon, drivers may have access to in-car payments. The ability to make purchases from the driver’s seat, without having to pull out a credit card or device, can save drivers time and get them to their destinations faster.
• Voice: We still can’t make objects appear with a snap of our fingers, but we can now make purchases with a few simple words. Several years ago, the concept of payments via voice command was mind-blowing. Now, the industry is taking steps to make this option a reality. Security is a key to success, making tokens important in protecting sensitive information. Being able to pay without having to lift a finger is the future of commerce
• Wearables: Payment technologies may eventually be available in a range of wearable devices and accessories, like glasses, watches, gloves and more, that enable you to pay without having to reach for your wallet or phone. 

As online and connected shopping continue to grow, optimal customer experiences and security will continue to be paramount. Tokenization remains at the forefront of this shift by paving the road for better online checkout that helps protect sensitive payment information while enhancing consumer convenience.

As we approach a critical turning point where omnichannel retail becomes ever-more prevalent, tokens will prove to be the driving force behind payment innovations that benefit both consumers and merchants. After all, shopping and paying from your sofa should be as secure and easy as a physical store…and softer. 

TS Anil is global head - payment products & platforms at Visa