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Consumer demand provides tokenization opportunity

Trends
6 Mins.

Rapid adoption of digital payments has been one of the most notable effects of the COVID-19 pandemic, but a greater appetite for frictionless payment has been an equally important, if less visible, trend. Industry experts discuss what this means for the payments landscape

At the height of the pandemic, digital payment experienced a 15-fold increase, according to Kaushalya Somasundaram, Head of Fintech Partnerships & Strategy at Square. To say that a sudden and global switch to a mostly remote and digitally dependent lifestyle had an impact on the payment industry would be an understatement. And, while the quick migration to digital might have been expected, the more interesting development has occurred in consumer behavior.

Spurred on by the disruptive environment, consumers developed an even greater appetite for invisible payment, presenting new opportunities and transforming the payment landscape. In the words of Myles Dawson, Managing Director at Adyen, “The horse has bolted.” Frictionless payment, enabled by technological solutions such as tokenization, has taken off and is here to stay. Now, it is up to all industry players to determine what to do about it.

Frictionless payment and checking out of the old normal

Fast adoption, omnichannel offerings, one-click solutions, and mobile wallets – these are the topics with which the world is not only presently concerned, but which will be carried over into a new post-pandemic reality. “Purchasing preferences have shifted,” Somasundaram says. “People are pivoting fast and adapting. We’re seeing customers adopting new ways of purchasing. While our view is that online and in-person brick-and-mortar options will last, we are entering a new norm.”

Somasundaram’s summation is backed up by recent research. According to the FIS Global Payment Report, e-commerce growth continued to increase throughout the pandemic, leading to a 19% increase over the 12 months prior – with 44.5% of all e-commerce transaction volume attributed to some form of digital wallet.1 While, according to a survey conducted by the Payments Journal, 30% of consumers adopted contactless payment in the wake of COVID-19.2 And 70% of those who did communicated the intent to continue using the payment method in a post-pandemic world.3

“People have grown more comfortable in providing their information, as long as in return they receive a really slick journey“
Myles Dawson
Managing Director, Adyen

A consumer-driven field of opportunity

There are no two ways about it. According to Dawson, “Demand for frictionless payment is strongly driven by consumers.” In addition to COVID-19 working as an incubator for digital acceptance at a time when cash and credit card payments faced new obstacles, the emergence of new business models continues to have an impact. Services such as Netflix and Uber, which successfully utilized tokenization to deliver seamless payment experiences to consumers, not only secured customer loyalty but also helped to drive the appetite for frictionless payment. Consequently, as consumers gained more trust in the security of contactless and invisible payment solutions, so too grew their willingness to exchange data for convenience. “People have grown more comfortable in providing their information,” Dawson explains, “as long as in return they receive a really slick journey that ensures they don’t have to keep rushing into another room to find their wallet or credit card.”

Merchants have not sat idly by, either. Payment, which according to Dawson was until quite recently viewed as a time-consuming inconvenience or commodity item by many CFOs, has come to be recognized as instrumental to the building of satisfying customer journeys. Cognizant of the shift in consumer mindsets, customer-centric payment experiences are increasingly being crafted around how effectively a consumer can be taken from product or service selection to checkout – and beyond – without facing a single disruption.

Tokenization and the frictionless world of tomorrow

Close up of a man shopping online using laptop with credit card. Man sitting at his desk doing online payment with credit card and laptop

Given the evolution of consumer sentiment in terms of frictionless payment, it should come as no surprise that, according to a MarketsandMarkets report, the global tokenization market size is predicted to more than double between 2020 and 2025.4

Furthermore, tokenization technology lends itself to broader advantages for every player involved in a transaction, according to Jukka Yliuntinen, Head of Digital Payment Solutions at G+D. Consumers, he says, are assured of data security while being rewarded with a frictionless process, as well as the extended capabilities to manage payment information and interactions. Merchants benefit not only from customer loyalty and reduced abandonment at the till, as a result of a more seamless journey, but also from easier PCI compliance by way of data encryption.

“Because card information is stored on a secure token,” Dawson explains, “the retailer or checkout is simply passing that token to the payment provider, who decrypts it and uses the card data to create the transaction. It’s a really secure way to enable smaller retailers and different types of business models to seamlessly create a payment flow.” Likewise, payment providers also benefit from data security provided by encryption and the secure transferal of payment data, as it leads to reduced incidence or risk of fraud, as well as a better relationship with e-commerce and traditional brick-and-mortar customers.

Overall, the hesitancy removed by digital necessity at the height of the COVID-19 pandemic has led to greater consumer trust and willingness to part with data, opening the door to opportunity. In the wake of this growing desire for a more contactless reality, it is up to each player within the transaction landscape to act. Yes, the horse has indeed bolted – and there has never been a better time for the industry to follow.

  1. The Global Payments Report, FIS, 2021

  2. PaymentsJournal, Mercator Advisory Group, March 2020

  3. PaymentsJournal, Mercator Advisory Group, March 2020

  4. Tokenization Market by Component Application Area, Tokenization Technique, Deployment Mode, Organization Size, Vertical, and Region – Global Forecast to 2025, MarketsandMarkets, 2020

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