The forward to the Bank of England’s most recent report on innovation in payments begins with the words:
“The concept at the heart of money is trust – a trust which is hard won but easily lost.”
In today’s financial climate, where digital transactions have become the norm, trust and security are more crucial than ever. However, 84% of consumers don’t completely trust online payments, and many drop out before they complete a purchase online due to safety concerns and a lack of payment options.
Tokenisation presents a way forward, offering an increased level of trust and efficiency that could tackle the concerns of consumers. And offer business increased security in the payments process. By replacing sensitive payment card information with unique identifiers (tokens), this technology provides a safe way to handle payment data from seller to consumer.
As the future of payments continues to evolve, safety, simplicity and global alignment will be essential. Tokenisation stands at the forefront of this with the potential to not only reduce fraud but also improve the customer experience.
An extra safeguard against cybercrime with tokenisation
The issue many businesses and customers face is that their data remains exposed during transactions. This increases the risk of fraud and company liability issues in the event of data breaches. Tokenisation technology replaces sensitive data with a unique, randomly generated string of symbols that cannot be easily interpreted. This provides an extra safeguard against cybercrime. This added level of security benefits both consumers and businesses. It can reduce vulnerabilities in everything from online purchases to mobile payments.
For merchants, this is particularly beneficial. By keeping sensitive information, such as customers’ card details, outside their own systems, they minimise the risk of security breaches. Tokenisation also helps businesses meet compliance standards, such as PCI-DSS (Payment Card Industry Data Security Standard). With no need to store or transmit sensitive data, companies can lower their security management responsibilities and reduce the overall costs of compliance. Tokenisation facilitates this easier compliance by deferring regulatory requirements across regions. Businesses can then rely on tokenised data instead of managing the security of the original PAN (Primary Account Number).
Enhancing the payment experience with tokenisation
Friction during transactions has long been an issue in finance, costing the industry $2 billion dollars a year in lost payments. Consumers increasingly expect faster and more seamless payments in all aspects of their life, from in store shopping to online purchases.
With tokenisation technology, the payment process becomes faster. Sensitive information no longer needs to be re-entered or verified externally during each transaction. This reduction in data exposure reduces the risk of fraud while maintaining the rapid pace of real-time payments. Overall this creates a secure and safe payment process for businesses while not interrupting the real-time user experience.
Frictionless payments aren’t the only benefit of tokenisation. With customers being more likely to complete purchases when a tokenisation system is in play, with Visa reporting that authorisation rates improve by 2.1% using the technology. This is mostly due to the dynamic card-on-file information that tokenisation provides. It reduces payment failures and ensures a smoother purchase process, with failed payments no longer an issue.
A final example for how tokenisation enhances payment experience both user and provider side can be found in B2B Cross-Border payments. The market is projected to grow significantly, with estimates indicating a 43% increase to reach $56.1 trillion by 2030. The risk of fraud grows with this, alongside increasingly in depth and complex international laws and national regulations, companies need both security, and to be customer facing in their plans. Technologies that secure payments and provide seamless transactions, like tokenisation, are pivotal in supporting this growth by reducing risks and improving efficiency.
The future of payments
As alternative payment methods and RTP networks continue to rise, tokenisation will be crucial in creating a global payments ecosystem that is both secure and frictionless. Visa has issued over 9.5 billion tokens globally, with Mastercard reporting over 50% year-over-year growth in tokenised transactions. This rapid adoption highlights the importance of tokenisation in building secure, efficient payment networks.
By reducing fraud, simplifying security management, and improving the overall customer experience, tokenisation is set to play a leading role in shaping the future of payments. Especially as digital and cross-border transactions become increasingly important.
It’s more than just a security measure. It’s a critical technology that enhances the entire payment ecosystem, making transactions faster, safer, and more efficient for all parties involved.
Gunnar Már Gunnarsson, Co-founder & CTO of PAYSTRAX
- Cybersecurity in FinTech
- Digital Payments
