Strategic Imperatives for Token Service Providers: Navigating Growth, Compliance, and Innovation in Payment Tokenization

As digital transactions surge across global markets, payment tokenization is becoming a linchpin technology for ensuring secure, compliant, and seamless payment processing. With mounting regulatory pressure and a rising volume of cyberattacks, Token Service Providers (TSPs) must adapt their offerings to meet shifting market demands, regulatory requirements, and evolving technological standards. This report summary outlines the market trajectory, key technological developments, and vendor strategies necessary for effective positioning within the payment tokenization landscape.

Market Overview

High-profile cyberattacks and the accelerated adoption of digital payments during the COVID-19 pandemic paved the way for the widespread acceptance of payment tokenization. Particularly in regions like Latin America, the pandemic accelerated the development of digital payment infrastructure, amplifying the demand for security solutions such as tokenization. While Europe initially led the tokenization adoption curve, North America has emerged as the frontrunner, despite its widespread pre-existing payments infrastructure.

Key legislative drivers, such as Europe’s General Data Protection Regulation (GDPR) and Payment Services Directive 3 (PSD3), and the global enforcement of the latest Payment Card Industry Data Security Standard (PCI-DSS 4.0) by 2025, are now accelerating demand for payment tokenization. Regional policies on data residency in markets like India, Saudi Arabia, and Indonesia are pushing vendors to offer localized deployment strategies. Meanwhile, the United States faces tokenization growth headwinds due to economic volatility and trade-related tariffs, which may temporarily suppress Information Technology (IT) security investments.

“The payment tokenization market will be hindered by expertise and awareness gaps, compounded by strict data residency requirements that TSPs adapt to secure their revenue prospects globally.” – Aisling Dawson, Industry Analyst

As the chart below indicates, ABI Research forecasts that token service providers will increase revenue generation from US$616 million in 2024 to more than US$1 billion by 2032.

Rising Demand for Network Tokenization

Network Tokenization (NT), facilitated through card networks like Visa and Mastercard, is emerging as a central pillar of the payment tokenization ecosystem. NT ensures uninterrupted card validity and enhances success rates for digital wallet transactions, both online and in-person. This frictionless integration is increasingly crucial given the ongoing surge in digital wallet adoption.

Push provisioning is now becoming commoditized. Major payment networks and Original Equipment Manufacturers (OEMs) like Apple are integrating native token provisioning directly into their digital wallets. Consequently, TSPs must pivot toward higher-value service offerings and technological differentiation to maintain market relevance.

Frictionless e-Commerce and Innovative Verification

The pursuit of streamlined Card Not Present (CNP) payment flows is driving interest in integrating tokenization with biometric and passkey authentication systems. This includes replacing 3D Secure (3DS) processes with passkey solutions across both mobile and desktop environments. These integrations reduce transaction drop-off rates and enable a more consistent user experience.

Leading firms like Google and Amazon Web Services (AWS) are pioneering new payment tokenization formats. Solutions range from browser-specific to device-bound tokens. These innovations are removing friction from provisioning workflows and boosting merchant adoption by circumventing Software Development Kit (SDK) requirements. As a result, payment tokenization vendors offering simplified Application Programming Interfaces (APIs) and turnkey deployment pathways are poised to unlock new revenue opportunities.

Navigating Security Compliance and Regulatory Complexities

Cross-border compliance remains a persistent hurdle for TSPs. As tokenization and blockchain technologies transcend borders, TSPs must implement manual compliance checks. This is slowing the migration of assets and services into tokenized formats. Meanwhile, PCI-DSS 4.0 introduces stringent client-side monitoring requirements. Sections 6.4.3 and 11.6.1 mandate new levels of security oversight, pressuring TSPs to overhaul their tooling and orchestration approaches.

Vaultless tokenization is gaining traction as a solution to these challenges. By eliminating the need to store Personally Identifiable Information (PII), vaultless models reduce compliance overhead and enable better scalability in multi-jurisdictional environments. However, legacy systems and entrenched regulatory standards still necessitate the coexistence of vaulted models in certain contexts.

Securing the Future of Payments with Quantum-Resistant Architecture

Anticipating future security threats, vendors are beginning to embrace quantum-resilient encryption standards. Although payment processing today still often relies on single or double Data Encryption Standard (DES), the gradual shift to Post-Quantum Cryptography (PQC) will eventually become imperative. Token service providers that integrate PQC early in asymmetric encryption for token transmission and Point-to-Point Encryption (P2PE) are better positioned for long-term trust and compliance.

Competitive Landscape and Vendor Differentiation

The payment tokenization ecosystem is composed of three overlapping domains: service providers, orchestration platforms, and card networks. Leading players like Thales, Entrust, and Fortanix offer broad, integrated tokenization suites that span mobile provisioning, click-and-pay, real-time fraud prevention, and confidential computing environments.

Tokenization vault suppliers and orchestration platforms make up the platform providers category. Token vaults store tokens within vaulted solutions, while token orchestration refers to the coordination and management of tokens within a merchant’s ecosystem. While vaultless solutions are becoming increasingly mainstream, vaulted solutions remain important under specific regulatory schemes and, thus, maintain a key role within the tokenization ecosystem. This includes traditional secrets management platforms like HashiCorp’s Vault and startups like Basis Theory’s Secure Data Vault. Meanwhile, firms like IDEMIA and Giesecke+Devrient are pushing boundaries in wearable payments, supporting a wide range of use cases and providing end-to-end solutions.

Card and payment networks like Visa and Mastercard are expanding their direct roles as tokenization provisioners, leveraging NT to offer end-to-end solutions that rival traditional platform providers. As this trend accelerates, modularity, customizability, and value-added services will be essential for TSPs seeking to preserve market share.

Get More Research

To explore how leading vendors are shaping the future of secure digital payments through tokenization, and how your organization can best position itself for success in this competitive ecosystem, download ABI Research’s reports:

• New Forms of Payment Tokenization
• Payment Tokenization: Business Models and Ecosystems