The short-, mid- and long-term future of tokenization in travel
- January 2023
- Phocuswright Research
The concept of tokenization has been around for decades. Since the early 2000s, tokenization has been used to reduce the risks involved with storing and transmitting credit card and other sensitive data. Its inception can be traced to 2001 when TrustCommerce developed a solution for its client, Classmates.com. Instead of storing sensitive cardholder data in raw format, they used tokenization to replace the primary account number (PAN) of their customers with randomly generated symbols that would be useless if intercepted by hackers. This type of tokenization of sensitive data has since become a common industry practice.
Blockchain technologies have now taken the concept of tokenization into a new era. In the blockchain ecosystem, tokens are assets that allow information and value to be transferred, stored, and verified in an efficient and cryptographically secure manner. The goal of blockchain-enabled tokenization efforts is to further improve liquidity, transaction efficiency and transparency. While tokenization was previously designed to protect sensitive data, the latest tokenization initiatives allow assets to be exchanged electronically based on predefined code that resides in smart contracts.
The Future of Tokenization in TravelTokenization has unimaginably broad implications; it is difficult to predict how the travel industry will embrace this technology. Following are some possible trajectories for the near-, mid- and long-term use of tokenization.
Near Term (2-3 years)
In the near term, blockchain tokenization must address real industry problems. As we have already seen with Pinktada and TravelX (to name a few), the commercialization of tokenized travel assets on the blockchain has already begun. NFT airline tickets and hotel rooms will likely see increased adoption in the near term as smart contracts help limit the resale of tickets, allowing suppliers to control how the exchange process works. Considering the current dysfunction uncovered by the mass refunding process that the pandemic triggered, finding a more efficient way to enable residual value of any travel asset is an opportunity for savings, control - and, most importantly - a better user experience. Another concern that tokenization can address is the pain associated with unpredictable and fluctuating foreign exchange fees when using credit cards across borders. By tokenizing the transaction on the blockchain, these fees could be avoided.
Mid Term (3-7 years)
The move toward decentralized blockchains is NOT a travel industry trend, but a trend of the broader internet technologies. As the internet plumbing changes, the travel industry will face a crossroad in the mid-term. So much discussion around the blockchain concerns "understanding the technology," but the reality of any technology adoption is that once it becomes mainstream, it is no longer viewed as a unique emerging tech where the details of how the technology works need to be understood. This is true with the internet (does anyone need to know how TCP/IP and packets work to pull up a web page?) and has been extended to other emerging technologies such as AI (do you need to know how Siri works to use the voice interface?). The travel industry is controlled by large, centralized entities that manage the flow of content and store personal information used for marketing and customization. The emergence of pure decentralized platforms such as Dtravel, which enables property managers to list their short-term rentals without the need for an intermediary such as Airbnb, points to a mid-term clash between the old and the new, with the consumer deciding the path to follow. For success in the mid-term, the process must be seamless for the consumer, which means the current trend toward digital wallets needs to be extended to included storage of blockchain assets such as NFTs and the ability to use these NFTs within the travel ecosystem as payment or a show of stored value without any operational issues. As this mid-term reality begins to emerge, centralized systems will either need to invest in blockchain as we already see by firms such as Airbnb, or go the way of BlackBerry, Blockbuster or Nokia.
Long Term (7-10 years)
Hopefully, the long-term future will enable all travel industry assets to be tokenized. In addition to the major supply elements of travel such as air, lodging and ground, long-tail assets will be tokenized to enable the consumer to integrate any aspect of travel into their journey at any point of the trip. Imagine being in an Uber and purchasing a fast pass, a way to speed through airport security, on your mobile device by paying with an NFT credit from an airline, loyalty reward or any supplier participating in the new travel ecosystem. This is the integration of NFTs into a greater travel experience, enhancing security and ease.
The tokenized future will enable a consumer to put forth their travel requirements and have suppliers bid on the customer's needs in a transparent and immutable record, where hidden costs and compensation is reduced and the true value of the asset can be sold in a seamless digital fashion. This should not only lower costs for suppliers and consumers, but present new business opportunities not yet envisioned, all enabled by the tokenization of travel assets.
This article, available only for Phocuswright Open Access subscribers, focuses on how blockchain tokenization will impact the future of travel. It breaks down:
- Tokenizing an Asset on the Blockchain
- Real-Life Examples of Tokenization
- Practical Uses of NFTs in Travel
- The Future of Tokenization in Travel
- And more
It’s important for executives throughout the travel industry to understand the reality that is emerging, especially for companies who control a centralized system or interact with one that does. Read this report and get a better understanding of how the goal of blockchain-enabled tokenization efforts is to further improve liquidity, transaction efficiency and transparency.
To further your knowledge of blockchain in travel, watch the Executive Panel from The Phocuswright Conference 2022 Blockchain: Gamechanger or Bust?
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