Digital Identities, Wallets and Tokens Give Consumers Passports to Commerce

The concept behind tokenization is straightforward.

Sensitive data (often personal information) is replaced with a non-sensitive, digital representation (token).

The simple concept is helping secure consumers’ identities, crafting a digital representation of the user that travels with them throughout their online and in-store journeys and serving as a passport, of sorts, for streamlined and secure commerce, especially when housed in digital wallets.

In terms of the actual technology itself, the tokens (as stored identity credentials) are programmable and thus can contain a range of points of information about a user. They can also be confined to certain use cases or even merchants, as permissioned by networks or users.

For merchants, the token itself allows for real-time verification of identities, which in turn leads to higher authorization rates for transactions, as users don’t have to keep re-entering information with each party on the other side of an interaction.

Tokenization of payment credentials has found widespread success. PYMNTS Intelligence’s “Tokenization Innovation Report” found that 78% of merchants enable network or payment tokens. Among merchants that use network tokens, 87% use them to enable card payments within digital wallets. Card-on-file payments, which can use stored customer payment information in a way that does not expose the underlying credentials when tokenized, are next most popular, at 63%. About 97% of payment service providers use network tokens to provide digital wallet payments.

The PYMNTS Intelligence report “Digital Wallets Beyond Financial Transactions: A Global Perspective” found that 74% of all consumers are satisfied with using digital wallets, in general, for non-financial activities. About 9% of all countries said they value the wallets as a convenient place to store ID documents. In the United States, 48% of consumers use their digital wallets for online shopping, while 39% use them in-store.

The U.S. edition of the report found that consumers are increasingly comfortable with using their digital wallets as a payment vehicle. The potential also exists for consumers to use digital wallets for verification.

The use of digital IDs and tokenized data to promote seamless commerce comes as merchants recognize legitimate customers and optimize the checkout process while blunting the impact of fraud.

“Identity is becoming smarter,” Mary Ann Miller, vice president of client experience at Prove Identity, told PYMNTS in October. “It’s using more than just data to include different signals and different attributes to form and authenticate identity.”

Embedded identity refers to integrating identity verification within platforms so seamlessly that the process becomes invisible to users.

Earlier this year, in an example of the digital-wallet-as-passport concept, Visa introduced Visa Payment Passkey, which confirms a consumer’s identity and authorizes online payments with a facial or fingerprint scan. Passkeys replace the need for passwords or one-time codes when shopping online, enabling more streamlined, secure transactions.

Mark Nelsen, senior vice president and global head of consumer payments at Visa, told PYMNTS in May that consumers can create a passkey for easier online payments. A private key is generated and stored on the consumer’s device upon consent. The key then creates a digital signature for transactions, ensuring the bank can verify the user’s identity.

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