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Innovation in payments is ever-evolving. And one of the big topics in the industry right now is network tokens.
These unique digital identifiers supply a tokenized value as a substitute for a primary account number (PAN) across the payment chain. They replace sensitive card data, such as the account number and expiry date on the front of a card used for payment, without exposing the actual account details.
The unique characteristics of network tokens provide the primary benefit of enhancing the security of card payments. However, they can deliver a whole host of other business benefits.
Let's look at five of the benefits network tokens can provide businesses.
1. Maximize repeat business
Credit and debit cards have a reasonably long shelf life. But they do expire — typically between two to five years after their issue date and sometimes sooner if the card is lost, stolen, damaged or compromised. And when a consumer receives their new cards, they may not remember to update their information with merchants.
Merchants offering subscription services know the pain of this situation and the involuntary churn it creates. To combat this, they've built various techniques to inform customers their cards are expired or are close to expiring and to request they update their information. But this process typically comes with an operational overhead and back-office cost. It's also not foolproof, meaning involuntary churn still accounts for 20% to 40% of all churn amongst subscription businesses.
Network tokenization provides a more robust solution as it neatly side-steps the problem of expired or canceled cards. This is because network tokens are dynamically and proactively updated in real-time, meaning the customer's payment details are always current.
Moreover, it's possible to apply rules around where, when and how network tokens are used. This means that if a token is compromised at one merchant, it won't negatively affect how other businesses process it. This increases the chances that businesses will always have the correct card number to tap into dependable recurring revenues.
2. Boost conversion at the checkout
Friction at checkout is the most likely reason customers abandon their purchases. Yet inputting card and shipping details can be a clunky experience.
A smooth checkout experience that doesn't get in the way of a sale is critical. That's why merchants increasingly allow customers to pay via options that rely on the customer having their card on file. And it's paying dividends. Solutions like mobile wallets and one-click checkout options, powered by network tokenization, are making the user experience both seamless and more secure, leading to higher conversion rates.
3. Improve authorization rates
A sale isn't complete until the customer's card issuer authorizes it. Our data shows that two-thirds of online retailers operate with authorization rates below 89%. So, there's plenty of room for improvement — and the incremental revenue that comes with it.
However, the biggest challenge for everyone in the payments value chain is validating the customer's authenticity and payment credentials. Is the customer who they say they are? And are their card details legitimate? Card issuers, acquirers and merchants are all trying to balance a first-class, frictionless customer experience with robust security and regulatory requirements.
Tokenizing card numbers for additional security isn't new. But unlike PCI tokenization between merchants and their acquirers or PSPs, network tokenization includes card issuers. After card schemes issue the tokens, they are shared with issuers, giving them greater visibility over token activity on the merchant side. The more control and visibility issuers have over tokens, the more confident they are likely to be in approving transactions, and the better the authorization rates.
4. Reduce fraud
Card-not-present fraud cost ecommerce merchants an estimated $35.5 billion globally in 2020. The pandemic has turbo-charged this type of fraud. It's no wonder that 41% of merchants told us that managing fraud and cyber is their top challenge in 2022.
However, protecting the business from fraud is a tricky balancing act. Letting too much fraud through hits revenue and damages a business's reputation. Yet over-protecting your business can have a similar effect. Declining the payment of a legitimate customer is one of the most expensive mistakes a business can make.
The higher security level with tokens leads to the potential for a lower fraud-to-sales ratio for such transactions, thus improving payment success rates. Tokenization also serves to neutralize the impact of phishing and malware attacks. Even if criminals steal tokenized data, they cannot use it.
5. Drive cost savings
Visa has announced plans to charge non-network token transactions at a higher rate. Merchants can help mitigate the cost impact of this rate increase by adopting network tokenization.
Storing sensitive cardholder data also places a heavy – and costly – security burden on businesses. Network tokenization cuts the costs of security compliance by reducing the scope of PCI DSS. A token alone is not enough to complete a sale. Merchant-specific information is also required, rendering stolen token details useless.
When it comes to driving cost savings, fully-loaded costs to a business of a data breach are far more significant than just a fine. These include the direct costs of lost revenue, incident response and breach notification. Plus the indirect costs that manifest when a business has its reputation damaged.
Realizing the benefits of network tokens
With the growth in digital commerce, customers expect increased speed, convenience, value and choice. Network tokenization can help deliver this along with more repeat business from the subscription economy, better conversion, authorizations rates, fraud rates and cost savings.
To get advice on the best network tokenization strategy for your business, contact our team of payment experts.
