Tokenization opens new frontiers for value creation

Payment providers are considering tokenization and blockchain-based decentralized finance systems to enhance transaction transparency, auditability and exploring various other use cases.

Tokenization opens new frontiers for value creation

Financial institutions and intermediaries are increasingly embracing the adoption of card tokenization to ensure the security of transactions across their entire lifecycle.

In 2022, the global tokenization market reached a valuation of $2.39 billion, and it is projected to reach $9.82 billion by 2030 at a CAGR of 19.6% during the forecast period, according to a report by market research firm Fortune Business Insights.

Blockchain-based decentralized finance (DeFi) uses open-source technology to eliminate costly payment processing fees by reducing intermediaries.

The global blockchain market in banking and financial services is growing from 2022’s $1.89 billion to $3.07 billion in 2023 showcasing YoY growth of over 62%.

By 2027, it is projected to reach $19.27 billion at a (2023- 2027) CAGR of more than 58%, according to a 2023 study by The Business Research Company in London.

What’s the catalyst?

While an increasing number of firms continue to leverage tokenization to boost security, they are also starting to actively explore more real-life DeFi applications.

Polling conducted for the World Payments Report 2023 revealed that 67% of corporations and 51% of payment firms are actively exploring tokenization for security and compliance.

Juniper Research anticipates that between 2020 and 2025, global e-commerce fraud losses will increase by 18%. In 2021 alone, e-commerce businesses worldwide lost $20 billion to fraud.

A 2023 study also revealed that 62% of consumers would forgo convenience for enhanced security of their sensitive information.

Commercial banks are actively developing deposit tokens, which are equivalent to existing deposits held by these banks. These tokens aim to facilitate diverse applications, such as domestic and cross-border payments, trading and settlement processes, as well as the provision of cash collateral.

What’s next?

Tokenization has become the transaction security tool of choice for payment providers.

Bluefin, the Atlanta-based data and payment security firm, integrated with Visa’s card network to provide tokens across card brands in early 2023. Bluefin’s vaultless network tokenization service protects payment and ACH account data – a feature that will enhance transaction security over the Visa network.
Discover Global Network, the payments brand of Discover, launched a cloud-based network tokenization platform in Q4 2023. This platform offers companies a scalable and flexible token solution to enhance payment process security and efficiency.
A subsidiary of Fortune 500 payments technology firm Global Payments, Global Payments Europe (GPE), and Netcetera, a digitization and software development services provider, joined forces in September 2023 to offer network tokenization to boost European online shopping security and consumer trust.
The integration of tokenization with blockchain technology is unlocking new frontiers of value creation and innovation as diverse use cases emerge.
HSBC has conducted successful tests on the use of tokenized deposits for intra-group treasury transactions, utilizing blockchain technology from China’s Ant Group. The initiative seeks to examine the possibilities of deposit tokenization in facilitating continuous, real-time movement of treasury funds between corporate accounts within the HSBC network.
Onyx by J.P. Morgan launched programmable payments using its blockchain-based digital currency, JPM Coin. This programmability empowers clients to implement personalized rules for their payments. The introduction of programmable payments opens the door to real-time, automated, and customizable treasury operations.
The Reserve Bank of Australia (RBA) and Digital Finance Cooperative Research Centre (DFCRC) announced “tokenized bills” as one of 14 use cases for the CBDC Pilot Project.
Unizon, an Australian blockchain startup, will create advanced digital invoices on the blockchain. These invoices will be transformed into automated payment tools and fractionable high- liquidity assets, benefiting small and medium-sized enterprises by enhancing supply chain finance efficiency, potentially lowering financing costs, and optimizing working capital.

As payment providers start adopting decentralized finance in 2024 and beyond, expect significant implications for domestic and cross-border payment ecosystems globally.

While most of today’s payment infrastructure revolves around centralised institutions, DeFi will help move payment processing to a more hybrid system, enabling payment providers to be nimble and prepared to adapt to changing transaction volumes more efficiently.

Strengthened by automated smart contracts, payment processors will be able to reduce the scope of errors and misdirected payments. Payment transaction security and cyberattack prevention will evolve from an encryption key-based approach to a more robust tokenization.


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