As E-Commerce Soars, Network Tokens Take off

Visa Inc. announced late Wednesday it has now issued more network tokens than there are physical Visa cards, eight years after the launch of the Visa Token Service. With a boom in e-commerce and other digital applications, the service has now issued more than 4 billion tokens, Visa said, almost twice as many as were in effect a year ago.

With Visa’s announcement, “the message is very clear—tokenized transactions is where [payments] are and where they’re going to stay,” says Thad Peterson, a senior analyst at the Aite-Novarica Group, a Boston-based financial-services consultancy. In June 2020, Visa said it had issued 1 billion tokens.

With tokenization, card issuers can replace sensitive data associated with physical payment cards, such as account numbers and expiration dates, with strings of symbols that would be meaningless to hackers if intercepted. The technology is not new but got a big lift with the introduction in 2014 of Apple Pay and other mobile wallets, which enable the use of virtual cards. “Each virtual version of a card is attached to a token,” notes Peterson.

Tokenization has gained further momentum in recent years from the accelerated growth of online commerce during the pandemic. Looking at more than 8,600 issuers and 800,000 merchants, Visa said tokens have boosted approval rates in addition to cutting fraud losses. U.S. e-commerce sales totaled $257.3 billion in the second quarter, according to preliminary numbers from the Census Bureau, up 6.8% from the same period in 2021.

“The uptick in issuers, acquirers, merchants, and consumers all transacting with Visa tokens reinforces that the future of money is truly digital, and digital money must be built on trust,” said Jack Forestell, executive vice president and chief product officer at Visa, in a statement.

Tokenization in recent months has also found applications in forms of electronic payment beyond cards. The Clearing House Payments Co. LLC, for example, said this spring it was working on using tokenization to mask deposit-account and routing numbers associated with automated clearing house transfers.