TALLINN, ESTONIA / ACCESSWIRE / August 4, 2021 / The world's first coins appeared during 600 B.C., when a kingdom associated with the ancient Greeks developed coins made of gold and silver. While humans continue to use coins more than 2,000 years later, the number of ways that one can make payments has not only increased, but has also improved drastically in terms of speed, security, and convenience. From paper bills to bank checks, and credit cards to mobile payments, each iteration of the global payments system has brought forward improvements to the way that two parties settle financial transactions.
Now, as we continue forward in what looks to be the "Roaring 20s" of the 21st century, humanity is about to witness the next generation of payment systems - with the introduction of payment tokens.
Payment Tokenization 1.0 - The First Generation
The concept of payment tokenization is not a new one - especially as mobile payment apps have slowly gained market share in the world of digital payments. But how exactly do your phone's payment apps function? And how do they ensure that payment details are safely and securely maintained - far away from the reach of hackers and fraudsters?
Defining Tokenization Today
Payment tokenization is currently known as the process of replacing sensitive data such as a credit card number or an account number with a series of randomly generated numbers. This series of randomly generated numbers, is then known as a token, and the collective process from start to finish - tokenization.
Tokenization in Practice
Mobile Payment apps leverage the tokenization process. This is done to store a user's payment information (e.g. a credit card) on a mobile device without exposing the original set of data (the credit card numbers). It is a feature that not only provides the security that users expect from reputable companies like Apple, but also offers a level of convenience each time a user goes through the payment process - by reducing the friction that one faces in taking out a card, swiping it, and then reinserting it back into a physical wallet.
When users first set up a credit card on their phone - their provider sends the details of the credit card to the card's issuing bank. In response, the bank replies with a series of random numbers (the token) which represents that credit card. Mobile company then programs this number into the phone, and this token is then called each time the user wants to make a payment. Thieves who look to extract credit card details from a mobile device are unable to do so - simply because the credit card details do not exist on the phone, thereby providing a strong form of security in protecting the cardholder.
Tokenization 2.0 - Redefining the Concept of Payment Tokenization
For the better part of the last ten years, a growing number of people have been working on what will soon be widely known as the next generation of the internet. More commonly referred to as "Web 3.0" or the "Decentralized Web," humanity's next gen internet will introduce a new online infrastructure that is vastly different than the one which exists today. This infrastructure, which will impact everything from the way applications are built to how assets are traded, will also impact how payments will also be made in the future.
The next generation of the internet will be powered by blockchains. The technology which powers the various chains will enable an internet where decentralization reigns and where trustless transactions can be executed - a world where intermediary third parties simply do not need to exist. In this decentralized world, an evolution of Tokenization 1.0 processes will need to take place - as payments on a blockchain differs significantly from payments off chain.
Introducing Blockchain Payment Tokenization
In the world of Web 3, the definition of "how payments work" will be enhanced. While the familiar concept of payments today is one party transferring a store of value to another party for the purchase of goods or services, a similar exchange on the blockchain could also be done by holding a special type of currency - specifically designed to allow the holders to consume a good or service while held under their possession. How is this possible?
PARSIQ'S IQ Protocol
PARSIQ is the world's first company to release a risk-free, collateral-less solution to tokenize subscriptions in the Software as a Service (SaaS) market. They are the creators of the IQ protocol, which was built to support subscription-based service models in the blockchain world.
How Does It Work?
In a traditional subscription model, customers make regular (e.g. monthly) payments to the providers of a good or service. As an example, a monthly music subscription may cost a user $9.99 per month, which is actively deducted from their credit card at the beginning of each month. This model is generally standard across all subscriptions - whether it be a subscription to a food delivery service, or a content streaming account. But what if there was a way to have a subscription model where a user did not have to make monthly payments - but where both the business was still earning payments and the buyer was still regularly receiving the good/service?
With PARSIQ's IQ Protocol, not only is this possible, but this is exactly how the solution was designed to work.
IQ Protocol works by creating a special type of token on the blockchain. These tokens, known as "Life-Time Value Tokens (LTV Tokens)", are assigned a life-time value tied to a particular good or service. For example, one LTV token may grant a token holder the right to watch one hour of TV shows per day for the next 365 days. These tokens are then released into the marketplace, available for interested buyers to purchase.
Once a company has tokenized a good/service for consumption, interested customers have one of two options. They may either become LTV token holders themselves, or, they may rent a LTV token from a "renting pool", which is comprised of LTV tokens owned by other buyers who are interested in renting out their LTV token asset.
Utilizing the content streaming example from above - consider a scenario where "Consultant Bob" purchases the LTV token previously described (one hour per day, for 365 days). Bob is a busy guy - but he does find time to watch his favorite series for one hour each day - thereby fully taking advantage of the token he has purchased.
One month after acquiring the token, Bob is asked to travel to China for a two-month consulting assignment. Unfortunately, the movie streaming service is not available in China, and so for the next two months, Bob will not be able to take advantage of the token which he has purchased. As Bob will be back in his home country in 60 days, he does not want to get rid of his token because he knows that he will use it again when he returns.
Instead of selling his token, Bob decides to stake his movie streaming token in the renting pool - allowing others who are interested in streaming services to rent his daily one hour of watching while he is away on assignment.
While Bob is away in another country, Alice learns about a new series that she is keen to watch. She is not a regular user of the platform that this series is streaming on, and typically prefers other streaming platforms - but this series she absolutely has to watch. Because Alice only wants to binge this series for the next few weeks - she decides that she only needs limited access to the platform. Alice goes into the renting pool and finds Bob's token available to rent. Alice rents the token from Bob, giving her the full privileges associated with that token for a specified time period. In turn, Bob begins receiving the rental payments (interest payments) from Alice as a form of earnings for making his token available in the renting pool.
Advantages in the Evolution of the Payments Tokenization Model
PARSIQ has completely reimagined what a payment transaction can look like - and with this new form of transaction, has introduced advantages to the conventional model which is generally adhered to in how payments today are performed.
Notice that in this new form of tokenization, there are no bank details or credit card details involved at all. The process is broken down simply to the acquisition of a LTV token - thereby reducing the risk of any personal details (associated with the bank or otherwise) to be compromised. With this new model, security in payment transactions has never been higher.
Utilizing this new model, businesses can also more easily offer different types of goods and services to their customers, by customizing LTV tokens across all customer demographics. Businesses may be able to unlock additional revenue streams for each of their customer categories which may not be practical or feasible utilizing the payment models of today.
The previous example offers the perfect use-case. A monthly content streaming subscription today can cost upwards of $17.99 per month for unlimited streaming. There may be families who simply cannot afford to spend this amount for a streaming subscription. However, if the company were able to offer a LTV token like the one described above, and if a customer like Alice might be able to rent that token in the renting pool for $6 per month for a limited time, this would potentially allow streaming providers to capture a new revenue stream that otherwise wouldn't have been accessible under the existing business model.
Alongside various blockchains and their underlying technologies, PARSIQ and their IQ protocol are unlocking new possibilities and business models as the world enters the next generation of the internet. As adoption of cryptocurrencies and the blockchain grows, companies will need to re-visit their existing business and payment models, and assess whether or not they continue to meet the needs of the customer in an ever changing world.
Those who can offer new and innovative ways of consumption of their goods and services not only will enjoy all that comes with first mover advantage, but will also potentially uncover new and unknown revenue streams across their product and service portfolios as well as their customer base.
SOURCE: PARSIQ LTD