Voice of the Industry

The business problems that network tokenization solves

Wednesday 15 June 2022 08:22 CET | Editor: Alin Popa | Voice of the industry

Innovation in payments is ever-evolving. And one of the big topics in the industry right now is network tokens. Adel Naamneh from Checkout.com discusses the benefits that network tokens can offer businesses. 

Payments are always changing and innovating. One current such innovation is network tokens.

Network tokens replace sensitive card data without exposing any actual account details. Unique digital identifiers act as a substitute value for a primary account number (PAN) across the payment chain. As such, the account number and expiry date on the front of a card are never revealed. 

Network tokens, therefore, enhance the security of card payments. But they also have other advantages for businesses. Here are some ways that network tokens can benefit a business.


Keep repeat business going

When expired, lost, stolen or when damaged credit and debit cards are replaced by customers, the card information that is stored with businesses will be out of date. This information has to be manually replaced by the customer with the new card information. Recurring payments and subscriptions often fail as customers forget to do this. The result is involuntary churn.

Of course, there are various ways that customers are encouraged to keep their information up to date. But, despite this, involuntary churn still accounts for 20% to 40% of all churn amongst subscription businesses.

A more reliable solution is network tokenization. As network tokens are updated in real-time, customers’ payment details are always up to date. Additionally, rules can be applied around where, when, and how network tokens are used. So, if a token is compromised with one business, other businesses will not be affected, and they can continue processing the payments connected to that card. The chances that businesses will always have the correct card number is increased and recurring revenues become more dependable. 


Increase conversion at the checkout

Any extra steps at the checkout increase friction for customers. And increased friction can lead to customers abandoning their purchases. Having a customer card on file gets rid of the clunky process of inputting card information during the checkout process. 

One-click payment options at the checkout that are powered by network tokenization are enhancing the user experience by making it smoother and getting rid of any barriers that may come in the way of a sale. Payments made this way are also more secure. The result? Higher conversion rates.


Improve authorization rates

Our data shows that two-thirds of online retailers operate with authorization rates below 89%. This means that there is a lot of room for improvement. And, with this improvement will come increased revenue. 

But how can a customer’s authenticity within the payments value chain be validated? How do businesses know that a customer is who they say they are and that their card details are legitimate? And all the players in the payments value chain—card issuers, acquirers, and merchants—are trying to balance frictionless customer experience with robust security and regulatory requirements. 

Of course, tokenization as a concept in payments is nothing new. However, while PCI tokenization is used for additional security through tokenizing information such as the PAN number, this is between merchants and their acquirers or PSPs. Network tokenization, on the other hand, includes card issuers. Card schemes issue the tokens and these tokens are shared with the issuers. This gives them greater visibility over the token activity on the merchant side.

After card schemes issue the tokens, they are shared with issuers, giving them greater visibility over token activity on the merchant side. Issuers are afforded confidence because of the increased control and visibility that this gives them. Therefore, they are more likely to approve a transaction. This means better authorization rates.


Decrease fraud and save on costs

In 2020, an estimated USD 35.5 billion was lost to card-not-present fraud In fact, 41% of merchants told us that managing fraud is their top challenge in 2022. But keeping fraudulent customers out while letting legitimate ones through is a tricky balancing act. Incorrectly declining the payment of a customer is an expensive mistake to make.

Tokenization gives each payment higher security. This has the potential for a lower fraud-to-sales ratio, therefore, improving payment success rates. Additionally, even if criminals steal tokenized data, they are not able to use it. So, phishing and malware attacks are neutralized. 

Plans have been announced by Visa to charge non-network token transactions at a higher rate. Businesses can avoid this cost by increasing their adoption of network tokenization. 

There is also an increased cost associated with the security burden of storing sensitive cardholder data. Network tokenization cuts the costs of security compliance by reducing the scope of PCI DSS.

The additional merchant-specific information that is required alongside the token in order to make a payment renders stolen token details useless. Therefore, data breaches and the associated costs—lost revenue, incident response, and breach notification—are more successfully avoided. 


Realizing the benefits of network tokens 

Alongside the growth in digital commerce, customers are expecting increased speed, convenience, value, and choice. Network tokenization is one way that this can be delivered through increased repeat business from the subscription economy, improved conversion, better authorization rates lowered fraud rates, and savings on costs.

To get advice on the best network tokenization strategy for your business, contact our team of payment experts.


About Adel Naamneh

Adel is a strategic advisor helping businesses thrive in the digital economy. He is part of the team at Checkout.com delivering innovative solutions, valuable insights, and expertise that merchants can count on in an ever-shifting world. Adel Naamneh is VP of Global Strategic Solutions in the UK for Checkout.com.




About Checkout.com

Checkout.com is a global payments solution provider that helps businesses and their communities thrive in the digital economy. It offers innovative solutions that flex to your needs, valuable insights that help you get smart about your payments' performance, and expertise you can count on as you navigate the complexities of an ever-shifting world.

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Keywords: tokenization, security token, payment methods, transactions , fraud management
Categories: Payments & Commerce
Companies: Checkout.com
Countries: World
This article is part of category

Payments & Commerce


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