Tokenisation: Cards and beyond.

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.