With digital fraud costing businesses billions each year, network tokenization emerges as a powerful tool for merchants to fight back. By replacing sensitive card data with secure tokens, this technology not only reduces fraud risks but also improves authorisation rates and enhances the customer experience. According to a recent study, network tokenization is expected to facilitate 85% of all global ecommerce transactions by 2028.
This does not come as a surprise, as 73% of consumers identify customer experience as essential to their purchasing decisions. A poor checkout experience can deter shoppers, with one in three choosing not to return after a bad encounter. For merchants, optimising every stage of the shopping journey – especially the checkout – is critical to retaining customers.
Martin Leucht and Mark Schropfer highlight the transformative potential of network tokenization. But what does this mean for merchants in practice? In the following sections, we’ll explore the key benefits, guide you through the activation process, and assess whether this new technology is truly revolutionary and will fit your business.
To put it simply, the technology replaces sensitive card information, such as the Primary Account Number (PAN), with a unique substitute value known as a token. This alphanumeric string bears no direct relation to the original card details, ensuring that the actual card information is never exposed during transactions. Each token is unique for every card and transaction, providing a high level of security and making it nearly impossible for fraudsters to misuse payment data.
Mark and Martin agree that network tokenization is a game-changer for the payment industry, although the technology has been around for a few years. Mark traces its evolution back to around 2020 when Mastercard’s Digital Enablement Services (MDES) began tokenizing card numbers. Since then, the technology has accelerated, driven by the boom in ecommerce and digital wallets like Apple Pay and Google Pay.
From the customer’s perspective, network tokenization streamlines the checkout process by eliminating the need for forms or PINs. The entire transaction occurs seamlessly in the background when the customer provides shipping and billing details, reducing friction and boosting conversion rates.
What makes network tokenization revolutionary is its broad application and security advantages. Unlike gateway tokenization, also known as card-on-file tokenization – where sensitive card data is stored by the merchant or their payment service provider (PSP) and decrypted mid-transaction –network tokenization ensures that card details are replaced with secure tokens managed by the card networks. ‘This offers an added layer of security, as the actual card information can only be decrypted by the card network or issuer, significantly reducing the risk of fraud and data breaches’ adds Martin.
Mark also notes the scalability of network tokenization, particularly in the omnichannel retail space, as it is not limited to ecommerce but extends to in-app and in-store transactions, giving merchants the ability to offer a consistent and secure experience across all platforms. This cross-channel functionality, combined with enhanced security, makes network tokenization a future-proof solution that will likely become the standard for digital payments in the years ahead.
Network tokenization provides several distinct advantages for online merchants:
Boosted authorisation rates: according to Mark, one of the most significant benefits is the uplift in approval rates. With network tokenization, tokens are automatically updated if a card expires or is reissued. ‘We have seen up to a 6% increase in authorisation rates in the UK and Ireland, with uplifts of as much as 13% in other regions’ Mark notes. This eliminates false declines and ensures transactions proceed seamlessly, boosting merchant revenue.
Improved security and reduced compliance: as Martin explains, network tokenization ensures sensitive payment information, such as the PAN, is replaced with a secure, random token that is useless if stolen. This mitigates the risk of data breaches and simplifies PCI DSS compliance requirements, ultimately benefiting both merchants and consumers. In essence, even if hackers intercept the token, it cannot be used without the original cardholder and merchant context.
Enhanced customer experience: network tokenization enables features like one-click payments and automatic card updates. For example, if a saved card is about to expire, this technology can seamlessly replace it. Mark adds: ‘While consumers may not always be aware of the underlying technology, they benefit from faster checkouts and uninterrupted service, especially for subscriptions and recurring payments.’
1. Discuss with your payment provider
Start by engaging with your gateway provider. You need to make sure that they have the appropriate infrastructure in place to effectively manage tokenization. Then, you and your team can assess the challenges that may arise with this development.
2. Integrate with your payment system
Mark emphasises the importance of updating your existing payment infrastructure. You may need to modify your payment gateway, APIs, and shopping carts to handle network tokens instead of PANs. ‘The easiest way is to use your PSP or an integrator’, says Mark, noting that the on-behalf-of model allows PSPs to manage the integration process.
3. Tokenize stored cards
Merchants that offer card-on-file services must ensure the stored card details are tokenized. Martin explains that merchants can convert stored PANs into tokens without customers having to re-enter their details, ensuring a smooth transition.
4. Set up token lifecycle management
According to Martin, managing token lifecycles is essential. The token must be updated whenever there is a change, such as a reissued card. Most PSPs handle this automatically, minimising disruption to the payment flow.
5. Monitor and optimise performance
Post-integration, Mark advises merchants to monitor key metrics like approval and decline rates. This ensures the system works optimally and provides insights for potential improvements.
While network tokenization offers significant benefits, there are some challenges to consider. Integrating the technology requires updates to a merchant’s existing payment infrastructure. Martin explains that, while the technical integration isn’t complex, it requires adjustments to the transaction flow. Another consideration is the awareness gap among merchants. As Mark notes, many businesses are unaware that they’re already using network tokenization through services like Apple Pay or Google Pay.
Despite this, Martin emphasises that the long-term advantages are clear. While there may be upfront costs associated with the investment in infrastructure and education, these expenses are often outweighed by the potential for higher conversion rates and enhanced security. Furthermore, the outlook for network tokenization is promising. As we look ahead, integrating biometric authentication methods – such as fingerprint and facial recognition – into network tokenization frameworks can provide even stronger security.
To close, network tokenization is more than just an emerging technology – it’s the future of digital payments. By eliminating sensitive data from the payment process, improving security, and boosting efficiency, it provides merchants with a solution that is not only effective today but also scalable for the future. As Martin and Mark emphasise, those who adopt network tokenization now will be best positioned to thrive in an increasingly digital and security-conscious world. If you think enhancing your payment system with network tokenization is complicated, there’s no need to worry – we're here to support you at every step!
With over 20 years in ecommerce and payments, including 15 years at Worldline, Martin excels in simplifying payment platforms to enhance merchant experience. Starting as a full-stack developer, he moved on to develop an industry-leading ecommerce suite at ePages. At Worldline, he advanced system test automation for Saferpay, and later became its product owner, upgrading merchant integration APIs. Now, as Product Manager for shared services, he oversees scheme tokens, account updater, and BIN aggregator. Martin holds a Master of Advanced Studies in Computer Science from ZHAW Zurich and, in his spare time, finds joy in playing the drums and immersing himself in the creative world of digital generative art.
With nearly a decade of experience in payments, Mark works as a Product Director at Mastercard. In his current role, he partners with merchants, PSPs, and acquirers to enhance their omnichannel acceptance solutions using Mastercard’s Digital Acceptance Products. He supports clients by analysing existing offerings and identifying opportunities for improvement. Holding a Law degree from Cardiff University, Mark previously worked in various legal positions at high-street law firms, as well as in-house roles at Airbus and Phillips 66. In his spare time, Mark enjoys going to the gym and travelling, with a particular fondness for road trips across the US, where he loves uncovering new landscapes and experiences.
Worldline [Euronext: WLN] helps businesses of all shapes and sizes to accelerate their growth journey – quickly, simply, and securely. With advanced payments technology, local expertise, and solutions customised for hundreds of markets and industries, Worldline powers the growth of over one million businesses around the world. Worldline generated EUR 4.6 billion in revenue in 2023. www.worldline.com
Mastercard is a global technology company in the payments industry. Our mission is to connect and power an inclusive, digital economy that benefits everyone, everywhere by making transactions safe, simple, smart, and accessible. Using secure data and networks, partnerships and passion, our innovations and solutions help individuals, financial institutions, governments and businesses realise their greatest potential. With connections across more than 210 countries and territories, we are building a sustainable world that unlocks priceless possibilities for all. www.mastercard.com
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