Tokenization Emerges as Guardian of Contactless Payments and Merchant Value

Watch more: Tokenization Emerges as Guardian of Contactless Payments and Merchant Value

As contactless payments become the default, robust security is imperative.

That’s why tokenization is transforming the way consumers and merchants think about payment security. Once relegated to back-end infrastructure and cybersecurity white papers, tokenization is increasingly considered table stakes.

The reason? Tokenization’s protective force is being more and more recognized for its fundamental role in enabling seamless, and smart, digital payments.

“The benefits of tokenization haven’t changed. A streamlined checkout process, additional protection as part of the transaction, the account updates in the case of a cardholder’s primary account number being lost or stolen or needing to be replaced, all of those result in a frictionless and secure transaction,” Valeri Vanourek, vice president of digital products at Discover® Network, told PYMNTS.

Read more: To Succeed in Retail Means Embracing the Contactless Revolution

What has changed? The fact that those who choose to invest in tokenization for their payment architecture could be best positioned to thrive in the next wave of digital commerce.

“Embracing network tokens allows merchants to gain enhanced payment security, reduce their fraud, improve authorization rates … and build stronger relationships with their customers,” Vanourek said.

And that is the holy grail of modern commerce: a system where safety, efficiency and customer experience are not only compatible but mutually supportive.

From Security Feature to Strategic Foundation

At its core, tokenization replaces sensitive payment data, such as a card’s primary account number (PAN), with a unique, nonsensitive equivalent: a token. This token is useless to fraudsters if intercepted, but functional enough to process a transaction securely.

For merchants and consumers, that once-basic security function has become an experience driver. This user-centric security approach reflects a broader industry trend: Protection doesn’t have to come at the cost of convenience. Rather, it should enhance it.

“Emerging technologies like passkeys and biometrics are being integrated with tokenization, and this supports frictionless experiences while delivering peace of mind that the transaction is secure,” Vanourek said.

Passkeys, she added, are gaining momentum.

These digital credentials leverage biometric authentication, like facial recognition or fingerprint scanning, to enable logins without passwords. For anyone who’s ever grappled with forgotten passwords and tedious resets, passkeys can unlock a simpler life.

“Passkeys are enabling a fast, secure experience — no password needed — which is so revolutionary these days,” Vanourek said.

Ultimately, tokenization should no longer be considered an optional upgrade. It’s becoming the de facto infrastructure behind modern payments, integrated not only in traditional eCommerce checkouts, but also in newer ecosystems like mobile wallets, connected cars and smart home devices.

Building Trust Through Tokens

Vanourek sees tokenization as a base layer — not a capstone — for future innovation. As artificial intelligence, biometrics and global regulatory frameworks evolve, tokenization will adapt in lockstep.

The recent opening of Apple’s near-field communication (NFC) technology to third-party developers is just one indicator of where things are heading. As these innovations grow, tokenization’s ability to operate invisibly and securely across platforms makes it the perfect foundational technology.

“We are in an evolving space,” Vanourek said. “Tokenization capabilities will improve and develop in tandem with that.”

Merchants, meanwhile, don’t need to start from scratch to participate in this shift. Most already work with processors or gateways that support network tokenization. But ensuring they get the full benefit of tokenization may require deeper integration.

“Many merchants are already integrated with a payment processor or gateway, and those providers typically support network tokenization. These vendors should be PCI compliant and follow EMVCo token and data handling standards,” Vanourek said. “Merchants should also ensure their systems can handle real-time token updates, as that’s critical for delivering a seamless payment experience.”

Beyond streamlining payments, tokenization also helps build trust, which can be an invaluable currency in today’s digital marketplace. Fraud, chargebacks and data breaches are top concerns for any merchant, and tokenization plays a central role in addressing all three.

“Securing data via tokenization ensures that it is useless to fraudsters or criminals if they obtain it,” Vanourek said.

That data security translates into measurable benefits: reduced fraud incidents and improved authorization rates when network tokens are used.

“Being able to analyze spending patterns, device information, and behavioral data is foundational to effective risk assessment and should always be a part of a secure transaction environment,” Vanourek said. “Enriching data — whether it’s transactional, behavioral, geolocation-based or biometric — enables more accurate scoring and helps build trust in both the transaction and the consumer.

“This helps strengthen dispute resolution by improving disputes intelligence, which is another way we combat fraud,” she added.

The equation, at the end of the day, is simple: less risk, more trust and better business.

Looking ahead, it’s possible that the digital payment revolution won’t be won by the flashiest apps or trendiest wallets. It will be secured and accelerated by quietly powerful  technologies like tokenization.

“Securing sensitive data will apply across the board, whatever new use cases develop,” Vanourek said. “All of those are critical components to success in today’s rapidly changing digital economy.”