Network Tokens: The essential key to secure and seamless payments

Network tokenization is emerging as a crucial solution for secure online transactions, especially with the rapid changes we're seeing in eCommerce. As payment fraud and data breaches continue to rise, merchants and consumers alike are seeking reliable ways to keep transactions secure without compromising the user experience. Network tokens offer a forward-thinking solution by ensuring that sensitive card details are protected, updated, and easy to manage. In this article, we’ll explore what network tokens are, their benefits, and why they’re becoming an essential tool for eCommerce businesses today.

What Are Network Tokens?

Network tokens are secure, dynamic replacements for credit or debit card numbers, created and managed by card networks like Visa and Mastercard. Unlike traditional tokenization, where merchants or payment processors generate static tokens that only protect card data within a single merchant or transaction context, network tokens are issued by the card networks themselves. This means that network tokens can be securely used across multiple channels, devices, or merchants, adding flexibility and reducing the risk of fraud compared to traditional static tokens. 

Tokenization vs. Traditional Card-on-File

In traditional card-on-file setups, merchants store sensitive card numbers (Primary Account Numbers or PANs) directly, often leading to complications such as payment failures when cards expire, are replaced, or need manual updates. Customers must update their payment information whenever card details change, causing friction, especially for recurring payments, which may result in abandoned carts or service interruptions.

Tokenization, on the other hand, replaces the card number with a secure token that is stored in the merchant's system. This token can be used for transactions without exposing the actual card details, which significantly enhances security. With advanced tokenization methods, such as network tokenization, these tokens are dynamically updated whenever card information changes, ensuring smooth transactions even when card details are modified. Tokenization, whether PCI or network-based, helps reduce failed payments, minimizes customer effort, and lowers the risks associated with storing sensitive card information directly.

Network Tokenization vs. "Traditional" Tokenization

Tokenization is a fundamental part of modern payment security, but not all forms of tokenization are equally advanced. Traditional PCI tokenization, aka PCI or static is one of the first solutions introduced to protect card data by replacing sensitive card details with tokens stored in the merchant's system. While this approach significantly enhances security and helps with PCI DSS compliance, it has limitations- particularly in terms of keeping up with changing card information, which can lead to payment disruptions and customer friction.

Network tokenization represents the updated, more advanced version of tokenization. Managed by card networks like Visa, Mastercard, and American Express, network tokens bring a dynamic and automated element to tokenization that traditional PCI tokens lack. Network tokens are "evergreen," meaning they are automatically updated whenever the underlying card changes, such as after a card replacement or expiration. This approach ensures a seamless payment process without requiring customer intervention and reduces the risk of declined transactions.

Below is a comparison between PCI tokenization and network tokenization:

Comparison: Network Tokens vs. PCI Tokenization

Feature	"Traditional"/PCI/Static Tokenization	Network Tokenization
Token Type	Static tokens, requiring manual updates	Dynamic tokens, automatically updated by the network
Token Issuance	Managed by the merchant or payment processor	Issued and managed by card networks (Visa, Mastercard)
Updates for Card Changes	Manual, requiring customer or merchant action	Automatic, reducing failed payments and customer effort
Security Features	Basic tokenization for PCI compliance	Enhanced with cryptograms and dynamic elements
Use Case Flexibility	Limited to individual merchant context	Usable across multiple channels, more versatile
Customer Experience	Requires manual card updates	Seamless experience, minimizing customer friction

Network tokenization, as shown in the table, provides a more comprehensive and automated solution compared to traditional PCI tokenization, enhancing both security and user experience for merchants and customers alike.

How Do Network Tokens Work?

Network tokens are designed to replace sensitive card data with a secure, non-sensitive equivalent, called a "token," which can be safely stored and used in transactions without compromising the original card information. Here's a deeper look into how network tokens operate:

1. Token Generation: When a customer makes a purchase and saves their card information for future use (such as in a subscription or account-based eCommerce site), instead of storing the actual card details—known as the Primary Account Number (PAN)—a token is generated. This token is a unique identifier linked to that specific card number but does not contain any of the original card data itself.
2. Token Issuance by Card Network: The card network (e.g., Visa, Mastercard) generates the token, which serves as a reference to the original card information in their secure environment. The card network maintains the mapping between the token and the card information, which means that merchants do not have direct access to the sensitive card data. This token is then shared with the merchant, allowing them to store it instead of the PAN.
3. Merchant Use: The token that the merchant stores can be used for future transactions with that particular merchant. If Sarah, for example, subscribes to a video streaming service and stores her payment information, the token issued to the streaming service can only be used by that merchant, and it’s useless if intercepted by someone else or used at a different store.
4. Transaction Processing: When the customer makes a payment, the merchant sends the token to the payment processor or acquiring bank, which then forwards it to the card network. The card network uses its internal mapping to identify the original card details and authorizes the transaction with the issuing bank.
5. Dynamic Elements for Added Security: Network tokens are dynamic in nature, meaning certain elements (such as cryptographic keys or transaction-specific details) are updated regularly. This makes the token even more secure because it has limited value if exposed outside the specific context in which it is used.
6. Evergreen Tokens: Tokens generated by the card network are "evergreen," meaning they are not affected by the expiration of the physical card or card reissuance. If a customer’s card is replaced, the network token automatically updates to reflect the new card details, allowing seamless future transactions without manual intervention from the customer.
7. Limited Use and Scope Control: Network tokens can be configured with specific controls. For instance, a token might be restricted to a particular merchant, a certain amount, or even a type of transaction (e.g., only for recurring billing). These controls help reduce the risk of fraudulent use and provide more security for both merchants and customers.

The Benefits of Network Tokens for Merchants

Network tokens have become essential for eCommerce by addressing two key challenges: enhancing security and reducing payment failures. Here’s a concise overview of the main benefits:

Enhanced Security:

• Protection Against Data Breaches: Network tokens replace sensitive card data, reducing the risk associated with data breaches. Even if tokenized data is accessed, it is useless outside its context, while the actual card details remain safely stored with the card network.
• Fraud Mitigation: According to Visa, network tokens have been shown to reduce fraud by up to 30%, providing businesses with a more secure payment environment. Dynamic cryptographic features ensure tokens are secure and cannot be reused, even if intercepted.

Improved Customer Retention:

• Reduction in False Declines: Network tokens automatically update card information when it changes, significantly lowering false declines due to outdated card details.
• Seamless Experience: Nearly 35% of customers abandon a merchant after a single card decline. Network tokens ensure card details remain current, providing an uninterrupted payment experience and fostering customer loyalty.
• Automatic Updates: Customers benefit from not needing to manually update card information, which helps retain users in subscription models and recurring payments.

Higher Approval Rates:

• Network tokens also contribute to improved transaction approval rates. Research from Visa shows that businesses using network tokens experience a 4% increase in authorization rates for card-not-present transactions.
• Issuers are more confident in the transaction’s legitimacy, thanks to the enhanced security and fraud prevention measures tokens offer.

Competitive Advantage:

• By adopting network tokens, merchants provide a secure, seamless payment experience, helping attract privacy-conscious customers and distinguishing themselves from competitors who might not offer the same level of convenience and security.

Use Cases of Network Tokens

Here are some key ways businesses are using network tokens to streamline transactions and enhance customer satisfaction.

• Subscription-based services (like streaming or SaaS platforms): Network tokens help keep payments going smoothly even when a customer’s card expires or is replaced. This way, users don’t experience interruptions in service, and businesses avoid payment failures that lead to churn. For instance, a streaming platform can keep charging customers seamlessly, even if their credit card is updated.

• Retail and eCommerce (online stores and marketplaces): Network tokens improve the chances of successful payments by ensuring updated payment details, leading to fewer cart abandonments. For eCommerce businesses, this means fewer failed transactions due to expired cards, which can help boost sales and keep customers coming back.

• Digital wallets and mobile payments (like Apple Pay and Google Pay): Network tokens make mobile transactions more secure and reliable by keeping payment info up to date. Customers don’t have to worry about expired cards when paying with their phones, and businesses benefit from smoother, more secure transactions whether in-app or in-store.

• Merchant switching Payment Service Providers (PSPs): When a merchant switches from one payment service provider (PSP) to another, network tokens simplify the transition. Instead of requiring customers to re-enter their payment information, tokens can be migrated seamlessly, reducing friction and ensuring that transactions continue smoothly without interruptions. This is particularly beneficial for merchants looking to improve their payment infrastructure without affecting the customer experience.

How to Implement Network Tokens

To implement network tokens, merchants can use services from payment providers. Integration typically involves:

1. Selecting a Provider: Choose a payment provider that offers network tokenization, ensuring that both the provider and acquirer support this feature.
2. API Integration: Use the provider’s APIs to replace stored card details with network tokens, ensuring transactions are secure without exposing sensitive card data.
3. Testing: Conduct tests to confirm the system operates seamlessly for both new and recurring transactions before fully deploying.

The exact process may vary depending on the chosen provider and their specific API requirements.

Challenges and Considerations

• Compatibility with Card Networks: Network tokenization is managed by the card networks, which means merchants need to ensure their payment processors support tokenization for different networks.
• Card Network Switching: If customers switch card networks (e.g., from Mastercard to Visa), a new token must be generated, which could involve some friction.
• New Issuer Tokens: Similarly, changing the card-issuing bank requires a new token, although most payment providers have systems in place to minimize customer inconvenience.

Conclusion

Network tokens are emerging as a powerful solution for secure and convenient online payments. While still gaining adoption, they already provide significant benefits for both merchants and consumers by reducing fraud, minimizing transaction failures, and improving the overall shopping experience. As the digital payment landscape evolves, network tokenization is positioned to play a crucial role in how businesses protect transactions and enhance customer satisfaction in the near future.

Curious about how network tokenization could benefit your business? Contact us to learn more and discuss how it could work for your specific case and needs.