A Comprehensive Guide to Network Tokenization
Learn how to use network tokens to secure customer data, reduce churn, and increase revenue.
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.
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.
Additionally, when you provision a network token from the major card brands, you receive cardholder metadata at the issuer level for the tokenized payment method. Included in that metadata is the Payment Account Reference (PAR). A PAR is a persistent, unique identifier that links transaction events associated with a PAN to those made with its network token. Merchants leverage PAR in many ways, including to streamline transactions for recurring customers and increase security of sensitive payment information. Regulations like Europe’s General Data Protection Regulation (GDPR) actually promote using identifiers like PAR to minimize exposure of sensitive customer data.
The persistent nature of PAR not only helps in tracing and linking transactions across systems, but also adds a layer of operational efficiency and security to payment processing. When you incorporate network tokenization into your payments operations, you have easier access to these benefits!
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):
not_sufficient_funds
Issuers may misclassify a small percentage of transactions as insufficient funds due to risk reasons. Network tokens can allow them to be more accurate.
do_not_honor
refer_to_issuer
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.
invalid_transaction
Issuers may classify a transaction as invalid for a number of reasons. Network tokenization can eliminate some of the underlying reasons for declining transactions.
invalid_account_no_number
pick_up_card
pick_up_card
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!
Included in the issuer-level metadata provided with your network tokens is card art—a digital image representing the card’s brand, type, and product. When you display this art in a customer’s account at checkout, you can reassure customers you have the right card on file to complete their purchase and confirm you have the most up-to-date details in the event their old card was recently replaced due to expiration, loss, or theft. With this one piece of extra information, you can boost customer confidence in transacting with you, thereby improving customer experiences and conversion rates.
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.
Proactive Checkout Guidance for Certain Payment Methods
If you analyze your incoming transaction data segmented by payment method—perhaps, using our data visualization and insights platform—you'll likely identify certain payment methods performing better than others. This can be especially true with different transaction types, such as recurring or subscription payments. For example, Apple Cash, Cash App, and Venmo payments work great for one-time, customer-initiated transactions, but can fail when used for merchant-initiated recurring charges. To optimize performance and conversion, you can proactively suggest alternative payment methods at checkout to those users.
To perform this kind of analysis, you need to know exactly which payment methods your customers use for each type of transaction. BIN data can help identify most payment methods, but not all; for example, it isn't enough to identify when a virtual card is backed by Apple Cash. For that, you need the issuer-level data returned through network tokenization. Once you know a customer is using Apple Cash to initiate a subscription, you can prompt them to choose a different card—helping prevent billing failures and reduce churn.
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 Pagos
The Pagos Network Tokenization API is a card brand-agnostic tokenization service, independent of your payment service providers. One integration with Pagos 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.
Pagos Network Tokenization 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.
Pagos provides a global solution, meaning businesses operating in any market can provision cards issued anywhere globally, provided the card issuer participates in network tokenization