- The way we buy products online could look completely different in less than five years, with companies like Mastercard phasing out manually typing in card details in favor of payment passkeys and tokenization. Experts say the transition could revolutionize the digital economy.
Next time you buy something online, take a second to explore the growing number of payment options: buy now, pay later; redeem credit card points; gift cards; and of course, the classic, input your standard credit card number.
However, in as little as five years, the latter may be completely obsolete—if companies like Mastercard get their way.
Gone will be the days when you want to make an Amazon purchase and realize you can’t remember your card’s 16 to 19-digit number, expiration date, and security code. In its place will come one-click checkout, thanks in part to tokenization—a way for merchants and card issuers to communicate via a “stand-in” number saved on your device instead of your sensitive details.
“We’re eliminating manual card entry by applying payment passkeys using the secure biometrics on the devices we already use, like mobile phones, to seamlessly authenticate a purchase,” Jennifer Marriner, executive vice president of acceptance solutions at Mastercard, tells Coins2Day. “This authentication, paired with tokenization—which secures billions of transactions annually—makes seamless one-click checkout possible.”
Digital payments’ gradual shift to tokenization
Tokenization technology is a measure that was introduced in the mid-2010s with the advent of mobile wallets, and today the process is revolutionizing the future of the digital economy by making transactions safer via the replacement of sensitive data with a non-sensitive token that’s virtually useless to attackers. That’s a welcome sign considering that by 2028, fraud from online payments will hit $91 billion annually, according to one estimate.
“Tokenization has revolutionized payment security by replacing sensitive card information with a randomly generated token and bound within a cryptogram, reducing fraud significantly. Even if hackers steal your token in a data breach, it’s basically worthless,” Marriner says.
Tokenization technology is being leveraged across different use cases beyond card payments and has the potential to reshape industries thanks to the ability to boost privacy and trust between unknown parties. This includes the tokenization of assets through blockchain technology—converting traditional assets like stocks, bonds or real estate into digital tokens on a blockchain.
According to Arun Sundararajan, professor of entrepreneurship at New York University’s Stern School of Business, there have already been some bumps in the road.
“Blockchain technology is fascinating and incredibly innovative. The tragedy is that the first application that ended up being widespread was cryptocurrency, which has sort of given the technology not such a good name,” he says.
Losses from cryptocurrency scams exceeded $5.6 billion in 2023 alone, according to the FBI.
“Criminals are creating impersonation tokens and sending them to victims with the hope the tokens will make victims more likely to trust or feel indebted to the criminals,” the FBI wrote. “Victims typically do not realize the impersonation tokens have no value until they try to redeem them at a cryptocurrency exchange.”
However, this level of fraud is highly unlikely to translate into traditional e-commerce. According to Mastercard, more than 30% of its transactions are already tokenized, with more tokens enabled for digital payments than physical cards in circulation. Marriner says that with any technological innovation, it will take time for all consumers to trust and appreciate the benefits.
Card companies want to phase out physical cards, but will it catch on?
With a shift toward tokenization, making peer-to-peer payments will become easier than ever and lead to questions about the future of companies like PayPal, CashApp, and Zelle, Sundararajan says.
In fact, he is surprised that these companies have been able to service thus far: “It’s amazing, in some ways, that 30 years after the emergence of PayPal, that is still actually a business that can exist because the problem hasn’t been solved.”
Ramnath Chellappa, professor of information systems & operations management at Emory University’s Goizueta Business School, says in the end, the shift to tokenized transactions may matter little to consumers but from a market standpoint, might be monumental in the long term.
“As consumers, we may not see much of a difference. It may even make things easier, but I think the power structure and the power game amongst all these people might be important,” he says.
In the next few decades, it is likely that physical cards and their numbers will slowly fade away in popularity, but the exact pace is unclear.
“Looking ahead to the next five years, we expect the clear advantages and variety of digital payments to make them the first choice for consumers all over the world. We’re seeing this now with our existing solutions, like contactless, for example, as well as digital wallets and nascent digital payment methods rapidly gaining popularity,” Marriner says.
However, similar to the shift from cash to card, there will likely remain those who prefer the existing methods who question: ‘If it’s not broken, why fix it?’
“Old habits die very hard,” Sundararajan adds.