Tokenisation: Cards and beyond.

Innovating cards and the connected future.

The Thredd team

June 24, 2024

Tokenisation, the process of replacing sensitive data with secure digital tokens, continues to enhance the payment experience and is rapidly evolving beyond its traditional application in cards.

As the Internet of Things (IoT) – and interconnectivity and automation in general – expand, tokenisation is positioned to play an important role in securing and streamlining payments for a vast array of connected devices and moments.

In trying to grasp the role, direction and potential of this important technology it’s helpful to take a step back and look at the underlying drivers that inform its impact.

Drivers

While the concept of replacing valuable assets with surrogate equivalents is a relatively recent innovation in the digital realm, it has historical roots in the physical world. Though coins and subway tokens may have laid the groundwork for the tokenisation we know today, the need to protect sensitive data and continuously raise the bar on convenience underpin its effectiveness in the digital age.

Broadly speaking, the drivers of tokenised card payments can be broken down into six categories:

1
Security

Tokenization protects sensitive card data, reducing fraud and enhancing customer trust.
2
Improved customer experience

Faster payouts, streamlined subscriptions, and easy expense tracking enhance customer satisfaction.
3
Frictionless payments

Digital wallets enable seamless online and in-app purchases.
4
Operational convenience

Tokenised virtual cards offer immediate issuance, easy management, and secure online payments, particularly relevant for businesses.
5
Control

Issuers can set spending limits and expiry dates for specific purposes, providing greater financial control.
6
Platform integration

The ability to ensure smooth integration with digital wallets and other platforms.

This last category is of particular interest as we look at current applications and where tokenisation might take us next in our increasingly interconnected world. More on that later.

Current and emerging use cases

Today, there are several notable use cases gaining traction for tokenized virtual cards:

Insurance payouts: Rather than waiting for checks, insurers issue immediate, secure payouts using virtual cards linked to specific claims, improving customer experience and reducing fraud risk.
Subscription management: Tokenized virtual cards are the emerging standard for subscriptions, with dynamic spending limits or expiry dates tied to the subscription period. This provides greater control and helps prevent unauthorised charges and service interruptions.
Travel and Hospitality: Hotels, airlines, and travel agencies are issuing tokenized virtual cards to employees and contractors to cover expenses like transportation and lodging. The ability to set spend limits, merchant controls, and expiration dates is helping these organisations to control costs, mitigate misuse and streamline operations.
On-demand Delivery Services: These digital-native businesses are leveraging tokenized virtual cards to provide just-in-time funding for delivery personnel at checkout, controlling spend on a per-transaction basis. This increases operational efficiency, worker safety, and fraud prevention.

Tokensation and IoT Payments

When it comes to the use of tokenisation, perhaps no space calls to mind more astonishing images of the future than IoT use cases.

Imagine your car – or even a fleet of cars – paying for themselves. With tokenised payments vehicles can automatically pay for gas at pumps, tolls on highways, or even parking fees in equipped zones. Additionally, routine maintenance services could in the future be pre-authorised using tokens, allowing cars to pay for oil changes or tyre rotations without driver intervention.

Sound far-fetched? Perhaps not when you consider some experts believe we could see limited deployments of autonomous vehicles (AVs) in ride-sharing fleets and long-haul trucking within the next 5-10 years, most likely in controlled environments or specific geographic areas.

Yes, tokenisation may even revolutionise the office. Printers and coffee makers could automatically replenish toner and espresso cartridges by triggering tokenised payments upon reaching a low threshold, putting an end to at least a few dreaded office moments.

On a more serious note, connected health devices such as insulin pumps or continuous glucose monitors could also be forever changed by automatically reordering supplies based on real-time data and tokenised payments – a potential life-changer in remote areas where nursing professionals and supplies may be scarcer or take longer to deliver.

Commercial and industrial applications

When thinking about scale, there may not be a more promising area for tokenisation applications than the commercial and industrial worlds. Take for example, platform economies and supply chains.

Think broadly about the countless value chains and interconnected platforms that the physical and digital worlds depend on. Then imagine all the underlying workflows, supply chains, transactions and related triggers among parties and systems.

Software, data banks as well as virtual and physical products can be embedded with unique tokens that track usage, volumes and movements, triggering automated payments at different moments and stages in innumerable processes, streamlining operations – and cashflows.

The Future of Tokenisation

As the IoT landscape continues to evolve, tokenisation will be a key technology for secure and frictionless transactions across a vast array of devices and applications. Through widespread adoption and standardisation, tokenization holds immense potential to transform how we interact with, and pay for, connected goods and services in the future.

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