Merchant services are facing unprecedented levels of change thanks to the expanded range of payment options now available, heightened customer expectations, stronger regulatory demands, and the arrival of new technologies. In this expert opinion piece, we look at two technologies, network tokens (NTs) and payment orchestration (PO), that are having a particularly significant impact on merchant services.
Payment tokens replace the Primary Account Number (PAN) with an alternative value that is unique to the merchant. A token of this type looks like a card number but, critically, has no monetary value, thus preventing criminals from exploiting compromised sensitive personal details following a fraud attack. Network, or scheme, tokens are the latest generation of tokenization technology and are managed directly by the international payment networks and follow the EMVCo technical standard.
NTs were initially created to support the introduction of Apple Pay and Google Pay proximity payments and digital wallets. Tokens are critical to the expansion of digital payments and are expected eventually to replace the use of card numbers everywhere.
Network tokenization services are provided by Visa, Mastercard, American Express, and national schemes like Cartes Bancaires. The transportation sector was an early adopter of NTs as a means to allow a single fare to be charged for multi-leg journeys provided by different transportation operators.
Transactions processed using NTs achieve higher authorisation rates as the issuer values the stronger security protection and the additional data elements allow for more informed risk decisions.
The main driver for merchant adoption is a reduction in merchant service fees. Initially, in North America, this came as an interchange reduction, but in Europe, it is to avoid Secure Credential Framework Integrity fees that apply to card-on-file non-tokenised transactions.
Customers benefit from an improved customer experience as renewals and subscriptions won’t be impacted by expired cards. Additionally, the display of digital card artwork provides greater consumer confidence. Tokens are updated centrally by the networks in real time, removing the need for inefficient card updater services. Further merchant benefits include support for multi-acquirer implementations and a reduction in PCI compliance scope.
Merchants have multiple choices when considering how to introduce network tokens, including who should manage the token service. The second choice is whether to have direct connections to each scheme or use an aggregator service. The third relates to the interaction between any existing token vault and the new network token services.
We believe that network tokens are best implemented at a gateway level to deliver acquirer agnosticism. Moreover, direct scheme connections are preferable over an aggregator service to minimise costs and maximise system performance and resilience and network token services should be integrated behind an existing PCI token vault. Network tokens become a key enabler for a unified omnichannel solution.
The second technology attracting much discussion is PO. This is because of the rapid growth in digital payments, the increased range of payment methods, the diversity of consumer preferences, and the need for smarter routing capabilities and simpler integrations. PO is not just for ecommerce; store traffic should also be considered. It provides merchants with simplification and greater control.
Payment orchestration can be delivered as a shared service, through a modular payment architecture. Merchants are seeking a simpler way to support additional payment methods and acquirer connections, especially when expanding globally. This includes local payment methods, account-to-account (A2A) schemes, and Buy Now, Pay Later (BNPL) services. A single API connection enables more payment options and generates efficiency savings.
A key differentiator is the smarter routing and cascading capabilities, allowing higher authorisation rates to be achieved – which is particularly relevant for merchants with high average transaction values or those trading in high-risk sectors. PO optimises transaction routing by using multiple criteria and rules, thereby maximising the chance of success, and avoiding a lost sale. Cost optimisation can also be achieved through PO.
Having a PO layer helps deliver consolidated management reporting and reconciliation, enabling enhanced business insights, trend analysis, and better decision-making.
PO works with NTs as the technologies are complementary. Both technologies support a multi-acquirer strategy and can be implemented as shared services within a modular omnichannel payments acceptance architecture. Introducing a third-party payments orchestration platform provider to the value chain would create complexity, duplication, confusion, risk, and add cost.
Network tokens and payment orchestration are technologies that offer great potential to improve the customer experience, increase authorisation rates, strengthen security, and reduce costs. But they need to be implemented in the optimal way, as part of an omnichannel solution and complementary to your existing payments acceptance environment.
Lee is the Chief Executive Officer for Worldline Merchant Services UK and, alongside his team, has an unparalleled track record of helping organisations deliver a reliable, secure, and fuss-free checkout experience. Having held a variety of leadership roles with market-leading technology companies over a 20-year period, Lee is passionate about driving solutions that deliver real value to his customers.
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 4.6 billion euros in revenue in 2023. worldline.com
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