Future-proofing current tech stacks: Behind Marqeta’s tokenization expansion

As consumers become more habituated to a digital-first world filled with online shopping and contactless payments, payment tokenization has become a sought-after technology by card networks and digital wallet providers.

In payment or credit card tokenization, the customer’s primary account number (PAN) is replaced with a series of randomly generated numbers, called tokens. These tokens can then be passed through the internet or different wireless networks needed to process the payment without revealing the actual bank details. The real bank account number is held safe in a secure token vault.

Analogous to the purpose of encryption, tokenization prevents bad actors from replicating sensitive card information and attempting digital data breaches.

The tokenization market is valued at $2.4 billion in 2023 and is expected to reach $6 billion by 2027.

To meet consumers’ growing demands for contactless transactions, financial institutions and service providers need to keep evolving their tech strategies in order to provide payment flexibility to their cardholders.

Both tokenization and encryption are methods to increase the security of sensitive data. 

Tokenization replaces sensitive data with new data — the token — and only the party that created the token can map it back to the original data. Encryption, on the other hand, disguises the data using an algorithm. But encrypted data can be decrypted by any party that has the encryption key to obtain the original data. 

Because consumers are increasingly comfortable with digital wallets, there is rising demand for a solution that enables users to quickly and easily provision virtual cards and digital wallet tokens from the web for Apple Pay or Google Pay.

In a move to keep pace with consumers' expectations for better payment experiences and enable transactions directly from their mobile wallets, Marqeta has expanded its existing tokenization capabilities.

Previously, cardholders were able to download their banking apps, and after the issuer integrated with Marqeta, the cardholder would be able to click a button in the mobile application to generate a digital wallet token. The other option was a manual process for cardholders to get the token into their wallets by using “manual provisioning,” by typing in the card details or by scanning the actual card itself. 

After the upgrade, cardholders can click a button on a webpage and receive a card token pushed to their mobile wallet, in-store or online from a website, email, text, or a QR code – without having to download a mobile application. This is currently offered in Beta, with general availability expected later in 2023.

Additionally, the new web push provisioning will allow Marqeta’s clients to be able to provide improved checkout experiences to their end users that will likely result in less cart abandonment and faster onboarding of new customers.

Besides enhanced security, tokenization also offers: 

• Payment continuity: When an underlying card is lost, stolen, expired, or terminated, network tokens in devices or stored at merchants can be dynamically updated without requiring the cardholder to wait for a new card and re-enter their details. This is highly beneficial for payments where the cardholder is not always present, such as a monthly subscription. Similarly, when a device with a token is lost or stolen, the token can be disabled and the physical card continues to work.

• Increased authorizations: Knowing a card has been securely tokenized can give card issuers greater confidence to authorize transactions, and with dynamic token updates, card declines are reduced as card details are always kept up to date. 

However, every rose has its thorn. 

The need to either manually add the card to the cardholder’s digital wallet (a lengthy user experience that requires the card number to be shown), or the need for the issuer to build a mobile application requiring the cardholder to download it, adds friction in the tokenization process. 

These are the exact pain points that web push provisioning aims to solve, according to Simon Khalaf, CEO at Marqeta.

Other obstacles exist on the issuer processor side, including the complex process of integration to networks and digital wallet providers.

What’s in store for payments

Although it remains to be seen what legislative changes will materialize in the payments sector, staying compliant with regulations is one of the key challenges fintechs will face in 2023.

Fintechs are evolving and improving customer experiences, as they look to attract the next generation of customers in financial services to continue to grow their businesses. However, this sector has also been dealing with challenges from multiple fronts over the last year.

Many companies had to tighten their belts and terminate projects as funding continued to narrow owing to record levels of inflation. Publicly traded fintech stocks experienced a 70% fall in 2022, while M&A exits fell 30% in Q2 2022 as everyone tried to cut down expenses – followed by the broad wave of layoffs. 

So where will fintech go next in 2023, and what shifts will be driven by the current economic environment in the payments landscape?

“The TikTok generation is coming to financial services, a younger cohort of mobile-only consumers who will have limited interactions with things like plastic cards and visiting banks in person. These consumers will likely begin most of their banking experiences on mobile phones doubling as a payment device, while the bank will likely be a brand they have a high level of affinity with,” said Khalaf.

Fintechs will look to build out an increasing range of innovative digital solutions in order to provide their customers with more control over different aspects of their financial experience – this is where the battle lines will be drawn among fintechs in 2023 and beyond, according to Khalaf.

“To do this, they will need to ensure the flexibility to build custom financial services and near-perfect embedded financial products. The name of the game in 2023 will continue to be future-proofing current tech stacks, or building new modern capabilities up from the ground, with an eye to capturing this current generation of consumers, and the next,” he added.