The modern consumer more and more demands convenience and seamlessness across their daily lives. This simple, singular fact has served as a benchmark for much of the innovation defining the payments and commerce landscape of the past few decades.
And with the news Tuesday (June 4) that Visa has issued its 10 billionth payment token, embracing payments innovations is top of mind for businesses interested in meeting their customers’ expectations.
That’s because tokenized payments, which work by replacing sensitive personal data with a cryptographic key, or token, have saved $650 million in fraud in the last year while driving over $40 billion in incremental eCommerce revenue for businesses globally.
“The security properties of the token enable merchants to embed it in virtually any payment experience. It does its magic in the background in making sure that the good transactions are getting through, but also in powering up these experiences that the modern consumer is seeking,” Mehret Habteab, senior vice president of Product and Solutions at Visa Europe, told PYMNTS CEO Karen Webster.
For instance, as Habteab explained, with tokenization, consumers can effortlessly use their smartphones or smartwatches to make payments for groceries or transit, simply by authenticating themselves through a quick biometric scan and a tap. This level of convenience not only meets but often exceeds consumer expectations, encouraging repeat business and fostering loyalty.
“The new generation of consumer expects that uninterrupted experience embedded with the merchant,” she said, noting that 29% of all transactions currently processed by Visa use tokens.
“We think tokenized payments have the propensity to penetrate some 70% of transactions as a whole,” Habteab added.
Tokenization can unlock a whole new era of personalization and security — one where consumers control their data and approve when and where it can be shared for a more personalized experience.
One of the more significant advancements brought about by tokenization is the increased control it gives consumers over their data. As Habteab explained, with Visa’s own recently unveiled data tokens, consumers can grant or revoke consent for data sharing with merchants, thereby maintaining control over their personal information.
This degree of transparency and control is pivotal in building consumer trust, especially in an era where data privacy concerns are paramount. At the same time, meeting consumer demands for seamlessly provided payments optionality is also becoming critical.
“Today’s consumer isn’t looking for a singular product. They have differing needs … and that’s what tokens have the opportunity to offer in this space,” Habteab said, highlighting that tokenization allows consumers to select their preferred payment method seamlessly, whether it be a debit card, credit card, or installment plan.
Looking to the immediate future, she said the integration of tokenization with generative artificial intelligence (AI) promises to give businesses new capabilities to deliver even more personalized and tailored AI-powered shopping experiences.
Another impact of payment tokenization is that it puts issuers at the center of the conversation around the consumer and their transactional needs and payment behaviors.
Issuers’ mobile apps can serve as the hub for managing tokenized credentials, allowing consumers to establish and revoke permissions as needed, said Habteab, explaining that this is relevant in the context of digital wallets, where the credential itself, rather than the form factor, becomes the key to accessing various payment methods.
Still, a critical challenge in the widespread adoption of tokenization is educating merchants, particularly small and medium-sized enterprises (SMEs), about its benefits. Many merchants are still unfamiliar with the concept of network tokens and how they can enhance their business operations.
Addressing concerns about control over customer relationships and ensuring smooth transitions between payment service providers (PSPs) are essential steps in this education process, Habteab said, explaining that as PSPs adopt tokenization and offer it as a standard service, merchants will find it easier to integrate and manage tokens, thereby unlocking the full potential of the technology.
“We started this journey 10 years ago, and I think it’s high time that this innovation now starts to get into the hands of everyday merchants, the small businesses that I mentioned earlier, so that everyone has benefit of this great standard that is tokenization,” she said.