Tokenization for Issuers and Merchants - Benefits Beyond Security

Digital commerce has become the norm for U.S. consumers, with 21% of all retail purchases projected to take place online in 2025.¹ As issuers expand digital offerings to keep pace with consumer preferences, fraud remains a growing concern – one in three Americans reported fraudulent charges in 2024.² Tokenization offers a safeguard by replacing card numbers with single-use tokens for in-store, online, and in-app transactions. This safeguard has become increasingly critical with the rise of contactless payments and mobile (digital) wallets.

What is Tokenization?

Tokenization is a security process that replaces a credit or debit card’s Primary Account Number (PAN)—the 16-digit number on the card—with a unique, randomly generated token.³ This token acts as a stand-in for the actual card number during a transaction, keeping the underlying card details protected. A token is often unique to a device, merchant, or transaction type, meaning that it cannot be reused or intercepted for fraud.⁴ As such, tokenization lowers fraud risk and increases approval rates without adding extra friction for the cardholder.

Applications for Tokenization - Contactless Payments and Digital Wallets

The global tokenization market is projected to reach $16.6 billion by 2032, growing at an expected compound annual rate of 21.5% from 2024 to 2032.⁵ Financial Institutions (FIs) and merchants that move early to integrate tokenization stand to benefit from stronger security, reduced fraud costs, and compliance with data privacy regulations.

TransFund partners with FIs to provision tokens for contactless cards and mobile (digital) wallets, empowering institutions to deliver frictionless, secure payment experiences across the following use cases:

• In-store using contactless payments: Credit and debit cards use tokenized credentials for secure contactless payments when the cardholder, the payment device, and the card are physically present at the terminal. TransFund offers plastic cards with near field communication (NFC) antennas to allow for tap-and-go purchases equipped with enhanced security using tokenization.
• In-store or online using a mobile wallet: Cardholders can make contactless payments at the point of sale, in-app, or online using mobile wallets on their phone, watch, or laptop. TransFund enables clients to support a variety of mobile wallets—including Apple Pay, Google Pay, Samsung Pay, and Amazon One—all of which use tokenized card numbers to enhance transaction security.
• Online using card on file: Merchants can offer faster, safer online checkout by storing a cardholder’s payment details as tokens. When a payment is made, the token is used instead of actual card data, protecting sensitive information and enabling seamless transactions.

Tokenization Benefits for Issuers and Merchants

Tokenization offers shared value to both issuers and merchants by enhancing payment security, streamlining the checkout experience, and reducing operational friction:

• Reduces fraud: Without tokenization, cardholders are more vulnerable to fraud or data breaches that expose their 16-digit PAN. Tokenization replaces this sensitive data with a unique token that can only be used within the specific merchant–cardholder relationship, rendering it useless to fraudsters. By reducing fraud exposure, tokenization helps both issuers and merchants lower chargeback rates and save on associated management costs.
• Enhances approval rates: Tokenization can improve approval rates by up to 3 to 6 percentage points for card-not-present (CNP) transactions, including online or in-app purchases.⁶ For smaller FIs, even modest enhancements in approval rates can contribute to impactful increases in interchange revenue.
• Drives higher conversion rates & sales: Tokenization reduces checkout friction by making it easier and more secure for cardholders to save their card on file or use tap-to-pay options like mobile wallets. This seamless experience encourages more frequent purchases and lowers the likelihood of cart abandonment. For merchants, that means more completed transactions and higher sales. Issuers can also benefit from increased transaction volume and the associated interchange revenue.
• Enhances the cardholder experience: Tokenization enables a seamless experience by ensuring stored payment credentials remain valid across devices and merchants, even after card updates. This convenience builds trust, minimizes friction, and encourages cardholders to save their cards on file or use one-click checkout.
• Ensures data compliance: By replacing PANs with secure tokens, FIs and merchants can streamline their data compliance efforts. For example, the Payment Card Data Security Standard mandates that organizations storing, processing, or transmitting cardholder data maintain secure data environments.⁷ Tokenization reduces the presence of sensitive data, thereby lowering the number of systems and processes requiring this security compliance.

Conclusion

Tokenization is transforming security and customer experience in digital payments. With TransFund's robust solutions, including support for tokenized mobile wallets and contactless payments, FIs and merchants can offer a seamless, secure checkout experience for their customers

Interested in a partnership with TransFund? Click here to connect with us.

Sources:

1. SellersCommerce, 51 Ecommerce Statistics in 2025, 2025
2. PYMTS, A Third of Consumers Have Been Victimized by Credit Card Fraud, 2024
3. Mastercard, Tokenization Explained: Protecting Sensitive Data and Strengthening Every Transaction, 2024
4. Mastercard, Network Tokenization: Your Business-Critical Questions Answered, 2024
5. GlobalNewswire, Tokenization Market Expected to Reach USD 16.6 Billion by 2032, 2025
6. PYMTS, Tokenized Credentials Accelerate Fraud Reduction and Get Higher Approval Rates, 2024
7. PCI Security Standards Council, PCI Data Security Standard (PCI DSS), 2025