Tokenization Was Supposed to Stop Fraud. It Didn’t. Here’s Why.
For the last decade, tokenization has been the “big fix” everyone was promised.
One legacy card rail has issued more than 10 billion tokens. Another states, of its ~5 billion tokens issued, one in four of its transactions is now tokenized and growing. Analysts project that more than 80% of global ecommerce will be tokenized within a few years.
And tokenization delivered real gains. Breach liability shifted away from merchants. PANs stopped sitting in databases where they didn’t belong.
Defenders will point to lower fraud rates on tokenized transactions – and they’re right. But when absolute fraud dollars keep climbing year after year, “less bad” isn’t good enough.
But here’s the problem: fraud keeps climbing.
U.S. card fraud hit $14.3B last year, up from $13.6B the year before.
In the U.S., card-not-present fraud – where tokenization was supposed to help most – now represents 65–70% of all fraud losses. Roughly $10B a year.
During Cyber 5 alone, over 4% of ecommerce transactions were flagged as suspected fraud attempts. And for guest checkout – nearly half of all e-commerce – tokenization doesn’t even apply. The PAN still travels in the clear.
So if token adoption is exploding…why isn’t fraud collapsing?
Because tokens didn’t remove the problem.
They relocated it. A token is still a credential – a value that exists, travels, and can be intercepted or replayed. It still maps back to a PAN – and every system that touches that mapping becomes an attack surface.
Tokens don’t expire in any meaningful way. They sit in merchant systems for months, years – persistent targets waiting to be found.
When attackers find the seams – replay vulnerabilities, wallet provisioning exploits, fallback-to-PAN routing – the fraud vector reopens. Tokenization reduces certain categories of fraud.
But it doesn’t address the root cause:
We still move reusable credentials through the system.
Attackers don’t care whether the credential is a PAN, a token, or a session key. If it works tomorrow, it’s worth stealing today.
That’s why even as tokenization expands, the U.S. remains the global outlier – 25% of global card volume, but 42% of global fraud.
You still pay the price: time lost, accounts frozen, funds drained through a system that was never designed for today’s attack surface.
Tokenization wasn’t a breakthrough. It was a bandaid for decades of payment infrastructure debt – a failure of imagination dressed up as innovation.
It solved the edges. It never solved the architecture.
And it was built for a world before quantum computing and effective artificial intelligence. That world is ending faster than legacy networks or merchants can keep up.
The real question was never “How do we protect credentials?”
It was: Why do credentials need to exist at all?
Next week: No PAN. No token. No problem.
Source: https://mica.io/perspectives
