It’s a dreary December morning and, on your way to work, you stop at a coffee shop. There are only three people in line, so you assume you’ll be served quickly.
But after a few minutes, you notice the customer at the front of the queue fumbling as they laboriously count out the exact change. The next customer is muttering cuss words under his breath, while the one in front of you is staring blankly at the sign behind the barista that says “Cash Only.”
After what seems like an eternity, but is probably only five minutes, it is finally your turn; you order an americano and begin to hand over a $20 note. The barista paints a plaintive smile, “Sorry, we don’t have enough change.” You put your $20 back in your pocket and walk out.
The next day, you decide to check out a different coffee shop. This one has a big sign on the door that says: “No Cash Payments.” Although the queue is longer than yesterday’s—you count ten people—it is moving quickly. You see that you can place your order using an app, which you do. In under three minutes, you are at the front. You present your phone, which confirms payment for your order, and the barista hands you your americano with a big, sincere grin.
For you, the coffee shop that has adopted app-based orders and payments represents a moment of convenience. But the coffee shop also wins, because it is better able to attract and retain customers, while reducing the amount of staff time devoted to processing payments. This means the baristas can focus on making great coffee.
A recent study by a team of economists from Charles River Associates (CRA) shows that payment innovations such as tokenization and near-field communications have quietly reshaped commerce over the last decade, delivering huge benefits to consumers, merchants, and society at-large. These innovations are not just making transactions easier; they are making the economy more secure, efficient, and inclusive.
Toward Frictionless Payments
The history of payment systems over the past half century is one of relentless improvement. From the introduction of the magnetic stripe in the 1960s, through the chips that were first implemented in the mid-1990s, to the development of tokenization and contactless payments a decade later, each step has brought us closer to the almost-frictionless contactless transactions we enjoy today.
Contactless payments utilize near-field communication (NFC) technology to connect cards, mobile phones, and other devices (such as watches and rings) to point-of-sale (POS) terminals. NFC uses high-frequency radio waves to transmit and receive data across very short distances—typically, a maximum of four inches (10 centimeters).
Tokenization, meanwhile, replaces sensitive card data with nonsensitive reference tokens. The mapping between the token and the underlying account number is stored securely by the issuer or network provider, not the merchant. Without access to the secure vault, the token is meaningless, reducing the risk of fraud if merchant systems are compromised.
Together, NFC and tokenization technologies have fundamentally changed the way we pay. What sets these innovations apart is not just their functionality, but their ability to solve persistent pain points in payments. Contactless payments dramatically reduce delays at checkout, which is particularly valuable for high-volume transactions, where speed is critical. Tokenization, meanwhile, directly addresses the rampant issue of fraud, which costs hundreds of billions of dollars annually. And it does so not only for in-person transaction but, crucially, for online transactions
Quantifying the Value of Payments Innovations
CRA’s analysis is the first attempt to quantify the social benefits of these payment innovations. To do so, the team calculated both the private benefits, which accrue to the innovator (e.g., the person or company that developed patents on specific aspects of a technology) and the public benefits, which accrue to end users (e.g., merchants and cardholders). Together, these private and public benefits are the social benefits.
Convenience and Speed
Taking contactless first, CRA note that, in the United States, it takes an average of about 15 seconds to complete a chip-and-pin card transaction. Cash transactions take about the same amount of time (when there is sufficient change in the till). A contactless transaction, by contrast, takes just eight seconds. When multiplied across billions of transactions, that seven-second difference generates enormous savings.
For consumers, these savings come in the form of the opportunity cost of time. CRA calculates that, for North America alone, the time savings for consumers for the period 2017 to 2037 is in the region of $80 billion (in 2021 dollars). Meanwhile, for merchants, the savings come in the form of reduced expenditure on staff. Over the same period, CRA estimates merchant savings of around $60 billion. Extending the analysis to the entire world, CRA estimates consumer savings of $440 billion and merchant savings of $270 billion.
Security and Trust
Tokenization offers an equally compelling case. Online fraud remains a persistent challenge. CRA very conservatively estimates that tokenization reduces fraud rates by 18%, saving $340 billion globally from 2019 to 2039.
Beyond the raw numbers, the benefits extend to increased trust in digital payments. Consumers who feel secure are more likely to shop online, and businesses can operate with greater confidence. For every dollar spent on implementing tokenization, society reaps a return well above the initial investment.
Reducing Abandoned Carts
One important insight from the study is how tokenization combats a seemingly unrelated issue: online shopping-cart abandonment. By enabling “card-on-file” transactions, tokenization simplifies the checkout process for repeat customers. This reduction in friction leads to lower cart-abandonment rates, especially in markets where distrust of online transactions remains high. The study estimates that reducing cart abandonment could unlock $500 billion in additional sales worldwide from 2019 to 2039.
The Cost of Progress
Of course, these benefits didn’t come for free. Developing and deploying these technologies requires substantial investment. R&D expenditures for tokenization and contactless technologies are estimated in the billions, with companies like Visa and Mastercard leading the charge. Merchants also bore significant costs, from upgrading point-of-sale terminals to integrating secure digital vaults for tokenized data.
For example, the CRA study estimates that the total cost of developing tokenization exceeded $30 billion, while merchants worldwide spent an additional $3 billion annually on implementation. Contactless payments was not quite as costly in terms of development, with around $12 billion spent in total. But with terminal upgrades alone costing $100 per-unit for millions of devices globally, CRA estimated the cost to merchants from 2017 to 2037 at around $340 billion.
In total, development and adoption costs from 2000 to 2039 were estimated to be about $130 billion. But compared with total benefits in the region of $1.5 trillion, the benefits clearly and vastly outweighed the costs. CRA estimates that, for the main payment networks of Visa and Mastercard, contactless generated a private internal rate of return (IRR) of 26% and 27%, respectively, while the social rate of return was between 34% and 39%.
Tokenization, meanwhile, generated a lower private IRR of between 5% and 10% but its social rate of return was similar to that of contactless, at between 31% and 34%. These returns on investment underscore the transformative nature of innovations in payment technologies—not just for businesses and consumers but for the economy as a whole.
A Platform for Broader Benefits
Payment systems are two-sided markets with merchants on one side, consumers on the other, and the payment network operating as a platform in between. Such markets are characterized by cross-side network effects. That is to say, technologies that increase adoption by one side—say, consumers—create benefits to the other side (merchants), which in turn leads to higher rates of acceptance.
This dynamic ensures that the value created by innovations is distributed widely across the economy. Lower costs from reduced fraud and faster checkouts enable merchants to reduce their prices, enticing more consumers and generating higher sales. For consumers, time savings and enhanced security mean more confidence and willingness to transact, also leading to higher sales.
The ripple effects extend even further. By reducing payments frictions, these technologies stimulate economic activity more widely. Incremental transactions—those that wouldn’t have happened without the ease of a tap or the security of a token—add billions to GDP annually.
Continued Innovation
The story of payment innovation is far from over. The next frontier may lie in biometric authentication, blockchain, or AI-powered fraud prevention. But the lessons from contactless payments and tokenization are clear: when we invest in reducing friction and increasing trust, the returns are enormous—not just in dollars, but in the social value they create.
So, the next time you tap your card or click “Buy Now,” remember that you’re not just completing a transaction. You’re participating in a global transformation, one that’s making the world more secure, efficient, and connected—seven seconds at a time.
