Protecting online payment data is integral to the security of the digital payments ecosystem. In an increasingly interconnected world, with a growing number of payment options, the need for strong security solutions is paramount.
Payments currently fall under four main categories: card present transactions, eCommerce payments, mobile payments, and Internet of Things (IoT) payments. With so many digital payment methods now in use, the need to ensure that consumer data is protected across all channels is growing rapidly.
According to the latest worldwide market study by Juniper Research, the total number of tokenized payment transactions will exceed one trillion globally by 2026 -- that's rising from 680 billion in 2022.
Tokenized Payment Market Development
This trend represents a growth of 58 percent over the next 4 years. Juniper attributed this growth to the rise of ‘one-click’ solutions -- such as Click-to-Pay -- that use card-on-file tokenization to store a customer’s payment credentials.
This secure process enables the merchant to auto-fill their customer's checkout details and complete online transactions via a single click that will complete the payment process.
Tokenization protects the customers’ payment credentials when stored -- replacing sensitive data with token values that hold no intrinsic value. This prevents malicious actors from gaining access to payment data in the event of a data breach.
Tokenization growth is being driven by increasing adoption of one-click solutions by merchants within eCommerce to reduce friction, and by card networks, who are encouraging mass adoption of tokenization at the network level to improve payment approval rates.
Juniper's analyst predicts that online and mobile eCommerce-tokenized volume will grow by 74 percent by 2026. This growth is driven by the increasing customer expectation of a frictionless eCommerce checkout experience, which one-click solutions offer via tokenization.
Substantial growth will also be driven by benefits, including time savings, by eliminating the need for customers to re-enter their digital payment credentials when shopping online.
Juniper Research also identified IoT payments as offering the largest growth in the tokenization market during the next 5 years, with tokenized IoT transactions expected to reach 19 billion by 2027, growing by 400 percent from just 3.8 billion in 2022.
Tokenization is critical in facilitating secure IoT payments -- enabling transactions to be made via new use cases and form factors, unlocking new revenue opportunities for digital payment providers.
Outlook for Tokenized Payment Applications Growth
According to the Juniper assessment, given the long development cycle, emerging tokenization vendors -- other than the already advanced payment card networks -- must begin scaling their own IoT tokenization solutions or risk missing this lucrative opportunity.
That said, I recall tokenization was initially used for single-use transaction digital payments. However, it's since expanded to allow for persistent and merchant-specific tokens, which are usually controlled by the issuer.
Card-on-file tokenization is currently the most prevalent digital payment use case in the market, in which tokens are created at the endpoint before being stored in the merchant’s cloud services, and may later be shared from there. That may change over time. We'll have to wait and see what evolves.