Network tokenization is a relatively new concept that is gaining rapid traction in the payment industry. The Paypers’ latest webinar, The truth about network tokens: are they worth the hype? provides a breakdown of network tokenization and its implications for the payment industry. The discussion brought together different perspective from industry stakeholders and covered the evolution, challenges, benefits, and the future of network tokens.
Network tokenization is a security technology where card networks (like Visa and Mastercard) replace sensitive payment card data with tokens. Unlike gateway or acquirer tokens, which are typically non-portable, meaning they only function within a specific payment flow, a network token requires participation from all links in the payment chain. Each link engages with the network token, ensuring that the Primary Account Number (PAN) is not exposed throughout the payment processing.
Network tokens enhance security and also come with card lifecycle management features, leading to higher authorisation rates.
Network tokens bring several benefits to merchants when it comes to authorisation rates and fraud decrease. As per recent data, Visa reports:
4.7% increase in ecommerce authorisation rates with token-based transactions vs. traditional card numbers;
34% reduction in ecommerce fraud rates due to tokenization;
12.6 billion tokens deployed globally as of Q1 FY25, showing massive merchant adoption.
Moreover, data from Mastercard indicates:
3% increase in authorisation rates;
50% decrease in fraud.
As emphasised during the discussion by Thomas Pappas, Corporate Director at Insparx, the highest uplift is for subscription businesses, especially for high-risk merchants, who report 15 to 20% uplift when using network tokens.
The portability of a network token is influenced by the token requestor ID (TRID). The owner of the TRID determines the processing capabilities of the network token. If a merchant obtains the TRID from an acquirer, they can only use the network token within that specific acquirer flow. However, if the TRID is registered in the merchant’s name, or in the name of their orchestration platform, it becomes portable. In this case, the token can be utilised across all participating acquirers, as long as they support tokenization.
A universal token is a token provisioned by an orchestration provider. Universal tokens are portable across all the acquirer relationships of a merchant, throughout the entire payment stack. The universal token is referencing the card’s PAN, meaning that at all times the merchant has the ability to detokenize it to retrieve the card’s PAN, and utilise it for other use cases that are outside of the network tokenization realm. The key difference between universal and network tokens has to do with the fact that, with the network token, the merchant loses access to the explicit card PAN. With a universal token, the merchant maintains visibility into a card’s PAN. Both network and universal tokens provide PCI relief.
The adoption of network tokens has been relatively slow, with varying experiences across different markets.
In the US market, we see higher adoption rates primarily because of the popularity of card transactions. All parties involved have prioritised the implementation of the technology necessary for network tokenization. Additionally, merchant advocacy has significantly contributed to this trend.
In contrast, Europe is experiencing slower adoption rates, with both issuers and acquirers managing busy roadmaps, legacy infrastructures, and network tokenization not being seen as a high priority.
Despite the clear benefits of network tokenization, its slow adoption is ultimately also due to the absence of mandates regarding its implementation.
As explained by Kiel Cook, Principal Product Manager at IXOPAY, the best failover strategies for network tokens – especially when a token isn’t issued, or a transaction fails – rely on merchants having a solid backup plan. This can involve maintaining a partnership with a third-party token provider. It is important to have a fallback option that allows access to the raw PAN, either by managing it in-house or collaborating with partners like IXOPAY.
The key difference between account updater services and network tokens lies in how they handle the PAN. An account updater is a direct PAN updating service, which means that the merchant maintains visibility over the PAN. On the other hand, a network token is built-in and requires no action from the merchant.
As mentioned above, the adoption of account updating services in Europe is relatively low. In the US, however, card networks have seen a broader adoption of such services.
By 2030, both Visa and Mastercard aim to eliminate the Primary Account Numbers (PANs), indicating a clear direction for the future.
While network tokens play a vital role, they won't solve every issue on their own. The key lies in leveraging a combination of solutions to achieve better security and higher authorisation rates. Thus, in the future, tokens should be used alongside additional layers of security such as biometrics and AI-driven solutions.
To maximise benefits from network tokenization, merchants should:
Start implementing network tokens now to leverage current incentives. As Thomas Pappas mentioned during the discussion, working with acquirers that support network tokenization is key.
Choose acquirer-agnostic solutions for maximum flexibility;
Consider orchestration platforms to maintain control over payment flows;
Ensure proper fallback strategies are in place;
Stay informed about evolving capabilities and requirements.
Diana is a Senior Editor at The Paypers. She has an extensive background in content creation and is a graduate of Foreign Languages and Literature studies, currently specialising in payments and ecommerce. She strives to bring forward the latest trends for our readers, while investigating the ever-evolving landscape of cross-border payments, global ecommerce, payments for marketplaces and online platforms, and emerging technologies across the globe. You can reach Diana via email at diana@thepaypers.com or on LinkedIn.
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