Tokenization Market (2023-2030)

The growth of this market is attributed to the demand for secure payment, proliferation of digital payment methods, stringent PCI DSS regulations, and increasing financial fraud in e-commerce. In addition, the growing inclination toward using payment applications across various industries is expected to offer significant opportunities for the growth of this market. However, tokenization implementation adds a layer of complexity to the IT structure, which restrains the growth of this market. Furthermore, the low awareness of online payments in rural areas challenges the market’s growth. Additionally, the rising adoption of cloud-based tokenization solutions and services is a major market trend.

The COVID-19 pandemic severely impacted most countries around the globe. Governments imposed countrywide lockdowns to control the spread of the infection. The lockdown restrictions impacted manufacturing operations, with production facilities shutting down or running at reduced capacities to ensure social distancing and employee safety. Most industries came to a standstill due to raw material & workforce shortages, supply chain disruptions, and restrictions on international trade. The combat measures, such as complete lockdowns and quarantines to curb the outbreak, negatively impacted many markets globally, including the payments market.

The COVID-19 pandemic acted as a catalyst for positive change, such as the shift toward digitization and cashless payments or eCommerce, which may benefit this market in the long run. Digital payment firms such as PhonePe, Paytm, and Amazon Pay witnessed a nearly 50% spike in transactions through their digital wallets since the COVID-19 pandemic. The sudden increase in digital adoption dramatically advanced the tokenization agendas for numerous banks, with banking leaders recognizing the need to distribute financial aid, fraud prevention, theft of respiration protection masks, and interruption of the value chain due to closed borders. The impact of the COVID-19 pandemic accelerated the adoption of tokenization offerings and shifted consumers and merchants of all ages towards digital tokens for enhancing consumer experience and security in sensitive data.

Digital payments were on the rise before COVID-19; however, the nationwide lockdowns catapulted a massive shift in consumer buying behavior and government policies & regulations and led to a rise in eCommerce. These factors have driven the adoption of digital payments across various industries and created the need for measures to protect online payments. According to McKinsey & Company (U.S.), in October 2021, more than 82% of Americans used digital payments and demanded faster, easier, and safer payments. The rise of contactless payments poses several challenges, especially security. To safeguard against security breaches due to the volume of contactless payments, business institutions such as retail, restaurants, and banking & insurance rely on tokenization as a security measure to replace sensitive information within a unique code called a token.

As security breaches and threats have become more common in digital payments, businesses and consumers look for solutions to limit the exposure of risk and improve compliance obligations. Additionally, the decline in payment cards is increasing due to fraud and inaccurate or outdated information, resulting in loss of sales and poor customer experience. Thus, businesses are adopting network tokenization as one of the optimal payment solutions to overcome such barriers. Tokenization replaces the customer’s primary account numbers (PANs) and other card details with a token and directly communicates with the issuing bank to verify the card's legitimacy, preventing card declines. According to Visa (U.S.), in November 2022, payment transactions using network tokens can reduce fraud by nearly 26% and have an average authorization rate increase of 2.2%. Thus, the rising adoption of different payment modes has accelerated the demand for tokenization solutions as secure payment processing facilitates the transfer of online payments, client data, and other sensitive information and protects against fraud and other security issues.