A Comprehensive Guide to Network Tokenization

Learn how to use network tokens to secure customer data, reduce churn, and increase revenue.

Payment card with the PAN number displayed as lock icons.
Payment card with the PAN number displayed as lock icons.
Payment card with the PAN number displayed as lock icons.

Arguably nothing in the payment processing landscape is more important than security and efficiency. Among the many technologies that address these essential objectives, network tokenization emerges as a game-changer. If you're intrigued by the concept of network tokenization and its potential to revolutionize payment processing, join us as we dive deep into what it is and how your business can benefit from harnessing it.

Understanding Network Tokenization

At its core, network tokenization is a sophisticated approach to safeguarding sensitive payment information while streamlining transaction processes. And while the technology behind it is sophisticated, the overall concept is pretty simple: substitute your customer's primary account number (PAN) and associated card details with a secure and unique identifier known as a network token. Unlike traditional card transactions where the PAN is directly transmitted, network tokens are specific to individual merchants—meaning only the merchant who did the tokenizing can use the token to process payments.

How Network Tokens Work

Tokenization of a customer’s card first happens when you add that card to your vault or ecommerce platform; you send the card you want tokenized to the card brand, and the brand returns (e.g. provisions) a network token. Alternatively, if you already have a large number of existing PANs stored on file, you can provision tokens for all those cards in a single batch, thereby leveraging network tokenization for existing customer relationships.

To actually process a transaction with a network token however, you’ll need to fetch a cryptogram. Cryptograms are single-use, non-stored keys that must be sent with the network token for decryption by the card issuer. Only together can the transaction be accepted. The tokens themselves adhere to industry-accepted EMVCo specifications and serve as identifiable entities throughout the entire transaction lifecycle.

Flow of how network tokens move from the merchant to the Acquirer to the Card Network and back to the Issuer.
Flow of how network tokens move from the merchant to the Acquirer to the Card Network and back to the Issuer.
Flow of how network tokens move from the merchant to the Acquirer to the Card Network and back to the Issuer.

This means that when a merchant initiates a transaction using a network token, the token seamlessly replaces the customer's PAN at every step of the transaction journey. From the merchant to the acquiring bank, and ultimately to the issuing bank, all parties involved can process the transaction using just the network token, ensuring a seamless and secure payment experience.

The Benefits of Network Tokenization

Enhanced Security

Network tokenization serves as a robust defense against fraud by significantly reducing the exposure of sensitive card information. Since network tokens are restricted to a single merchant and possess limited usability, they become virtually useless if intercepted by malicious entities. This enhanced security not only protects consumers' financial data but also safeguards merchants against potential breaches and fraudulent activities.

Reduced Transaction Declines

One of the most significant advantages of network tokenization is its ability to minimize transaction declines. Unlike traditional card transactions, where declines may occur due to card replacements or updates, network tokens remain functional even when card details change. This ensures uninterrupted transaction processing and enhances customer satisfaction by reducing the likelihood of declined payments.

Additionally, network tokens are provisioned in partnership with the networks, and are therefore deemed to be more secure and trusted overall. When networks and issuers have a higher level of confidence about the authenticity of the transaction, they're more likely to approve it. When merchants process transactions with tokenized payment methods, they can see reductions in decline rates for the following decline reason codes (depending on the card, market, and issuer):


Issuers may misclassify a small percentage of transactions as insufficient funds due to risk reasons. Network tokens can allow them to be more accurate.



Some percentage of these types of declines are really hiding other issues—especially for credit cards. Network Tokenization is a more secure transaction, therefore allowing issuers to accept more transactions confidently.


Issuers may classify a transaction as invalid for a number of reasons. Network tokenization can eliminate some of the underlying reasons for declining transactions.




With network tokenization there should be no invalid account numbers.

Streamlined Checkout Experience

By minimizing transaction declines and ensuring seamless payment processing, network tokenization delivers a streamlined checkout experience for customers. With fewer interruptions and smoother transactions, customers are more likely to complete their purchases promptly, leading to higher conversion rates and increased revenue for merchants.

Cost Savings

In addition to bolstering security and enhancing customer experiences, network tokenization can also lead to significant cost savings for merchants. By optimizing interchange fees through detailed transaction data and improved security measures, merchants may qualify for lower processing fees, ultimately reducing their operational expenses and improving their bottom line.

Implementing Network Tokenization

While the benefits of network tokenization are clear, the implementation process can seem daunting.  Each of the major card brands (e.g. Visa, Mastercard, Amex, and Discover) offers their own network tokenization programs, meaning you'd typically need to join each brand's program on your own or with the help of your PSP to tokenize all the cards in your vault. This means managing multiple relationships and facing different sets of service fees from each network.

Don’t worry, there’s a better solution:

Network Tokenization with Toucan by Pagos
Network Tokenization Flow
Network Tokenization Flow
Network Tokenization Flow

Toucan by Pagos is a network-agnostic tokenization service, independent of your payment service providers. One integration with Toucan allows you to quickly tokenize all the cards in your vault, regardless of network. Instead of paying to provision a token multiple times for the same PAN—one for each processor—you request only one token to use across all your payment service providers (PSPs).

Other benefits include:

  • Pagos manages the relationships and connections with the card brands on your behalf, removing all complexity while still granting you access to this valuable network service.

  • Toucan also supports passing metadata and card art with network tokens, and stores the PAN associated with a token, in case you ever need it as a reference.

  • ​​Toucan is a global solution, meaning businesses operating in any market can provision cards issued anywhere globally, provided the card issuer participates in network tokenization

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Pagos helps you achieve optimal payments performance.

Pagos helps you achieve optimal payments performance.