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CKO Explains Network Tokens


Network tokens are a hot topic in payments right now. This is due to the potential of network tokens to help businesses achieve higher authorization rates, reduced fraud and allow businesses to offer an improved customer experience. 

But what exactly are network tokens and how do they work?

In this article, we explain:

  • What network tokenization is
  • How network tokenization works
  • What business advantages network tokenization provides
  • The future of network tokens

Discover five business problems that are solved by network tokenization.

Understanding network tokenization

Network tokens are unique digital identifiers used to supply a tokenized value instead of the primary account number (PAN) in all parts of the payment chain. These tokens replace sensitive card data, like the account number and expiry date on the front of a card used for payment, without exposing the actual account details.

Network tokens are generated automatically and in real-time by the card schemes as customers use their cards. For example, when they're checking out on an ecommerce website or paying using a pass-through digital wallet, such as Apple Pay or Google Pay.

How does network tokenization work?

Payments processed using network tokens follow this process:

  1. A customer enters their account number, security code and other payment information (e.g. at checkout or when setting up a digital wallet)
  2. The merchant’s payment service provider requests a network token from the card scheme
  3. The card scheme shares the network token with the card issuer
  4. The card scheme shares the network token with the merchant’s payment service provider
  5. The merchant processes payment using the network token

What's the difference between network tokenization and PCI tokenization

Network tokenization is similar to PCI tokenization, sometimes known as vault tokenization, undertaken by acquirers or payment service providers on behalf of their merchants. This secures card data between the token provider and merchant to help reduce the scope of PCI DSS – that’s the payment card industry data security standard in full.

The key difference between network tokenization and PCI tokenization is that the card scheme issues the token, not the acquirer or payment service provider. This makes network tokens interoperable across the entire payment ecosystem, and for a broader range of use cases.

What business benefits does network tokenization provide?

There are many ways network tokenization can help businesses. Four main benefits are:

1. Maximize sales

Card-based payments are subject to increasing checks, particularly in view of Strong Customer Authentication (SCA) requirements in Europe. But, at some point, additional security becomes a point of friction for consumers, leading to cart abandonment. Our data found that 12% of European retailers had seen approval rates decline due to the early impact of SCA.

Implemented as a part of an authentication strategy, network tokenization can help reduce the scope of SCA requirements. Fewer challenge or step-up authentications cuts payment friction and improves authorization rates and payment success. According to Visa, merchants using network tokens see an authorization rate uplift of around 2%.

2. Lower the cost of doing business

From April 2022, merchants using network tokens will pay lower interchange fees. This includes transactions made using digital wallets such as Apple Pay and Google Pay.

3. Minimize involuntary churn

Not so long ago, prompting customers that their card was soon to expire, or had expired, was one of the only ways to tackle the challenge of old cards. However, unlike cards, tokens have no expiry date, minimizing the risk of involuntary churn. 

This makes network tokenization a great solution for any business looking to generate significant revenue from repeat customers with card-on-file, recurring or subscription business models.

4. Reduce checkout friction without compromising security 

Friction at checkout is the most likely reason for customers to abandon purchases. Inputting card and shipping details can be a clunky experience, especially on a mobile device. 

Businesses can remove a large amount of this friction by allowing customers to pay via digital wallets or one-click payment options. Both use saved card details, powered by network tokenization, making checkout quicker and more secure.

What’s next for network tokens?

Network tokenization is expected to expand with the growth of digital wallets, card on file, one-click and other frictionless payment options. 

Moreover, Visa and Mastercard have signed a reciprocal tokenization agreement, which boosts the take-up and utility of network tokenization across the payment value chain.

Under the agreement, Visa can request tokenized Mastercard payment credentials from Mastercard for use in a Visa Checkout wallet. And similarly, Mastercard can request tokenized Visa credentials for provisioning into a Masterpass wallet. 

This acknowledges that merchants and consumers have multi-branded payment relationships and expands the availability of network tokens for more secure remote payment.