Digital Armour for Online Transactions: Understanding Network Tokenisation

With network tokenisation, major card schemes like Visa, Mastercard and American Express issue the tokens, while PCI tokenisation has acquirers or payment service providers handling token issuance. This distinction means that network tokens work seamlessly across the entire payment system and have a broader range of applications.

In this blog, we'll explore the world of network tokenisation. Although initially targeted at the CNP environment, this payment technology has wide-reaching applications. As such, we’ll explore how it works, the advantages it brings, its crucial role in ensuring compliance with the Payment Card Industry Data Security Standard (PCI DSS), and its potential to transform the entire global payments landscape.

Simplified recurring payments and increased authorisation rates

Customers subscribing to services without network tokenisation may face disruptions when their card is lost or expires. In such situations, customers must re-enter their card information after payment failures. However, network tokenisation offers an elegant solution by ensuring that cardholders don't need to update their payment details when they receive a new card. This process links to a customer's card funding account rather than the physical card itself, enabling seamless and hassle-free recurring payments. This enhanced access to payment credentials simplifies the process, reducing payment declines, improving authorisation rates, and facilitating uninterrupted payments.

When businesses consider the adoption of this cutting-edge technology, the benefits of enhanced authorisation rates over traditional PANs are substantial. Collaborative data with Visa, for example, shows up-to a remarkable 5% increase in authorisation rates (source: VisaNet Data Feb-Apr 2022 Issuer region: Europe; Visa Token transactions compared to PAN-based transactions online). Embracing network tokenisation not only fortifies security but also opens the doors to a seamless, efficient payment experience—ultimately resulting in happier, more satisfied customers.

Fine prevention and cost reduction

Becoming a compliant merchant comes with its share of rules and costs. Among these expenses, safeguarding sensitive customer data is often a challenging yet crucial obligation. Meeting the data security requirements outlined by GDPR and PCI DSS can be both resource-intensive and expensive. Non-compliance with these standards may even lead to severe legal repercussions for merchants.

However, by eliminating the need to handle sensitive data, network tokenisation simplifies the path to robust compliance, effectively removing a significant hurdle. When integrated into a merchant's payment infrastructure network tokenisation facilitates streamlining of resources; both time and money.

But the benefits don't end there. Card schemes provide a reduced interchange rate for specific card categories with the network tokenisation label. This means that merchants will pay less for transactions involving network tokens. The bottom line? Reduced costs all whilst staying compliant and ensuring secure transactions for their customers.

International e-commerce giants, with their sheer volume of online transactions, naturally experience a high number of recurring transactions. This inherent advantage allows them to reap substantial ROI. In contrast, smaller merchants may not see immediate returns due to initial set-up costs.

Nevertheless, all merchants can profit from the operational benefits of network tokenisation and globally, we're witnessing strong growth, with more than one in three transactions already tokenised (source: VisaNet September 2023). This trend suggests that merchants of all sizes may soon embrace this innovative technology for its clear benefits.

Data-richness for informed business decisions

Network tokenisation replaces sensitive card data with secure tokens while preserving vital information without compromising security. This enables businesses to monitor customer transactions and preferences without accessing their actual card details. Through token analysis, companies can detect spending patterns. For instance, if a customer consistently uses a specific token (associated with a particular payment method), a business can deduce the customer's preference for that method. These insights empower companies to personalise their marketing efforts. If a customer frequently buys from a specific category, the company can send them tailored ads or promotions related to that category.

Bolstered security and fraud reduction

Network tokenisation provides robust fraud protection by rendering intercepted tokens worthless. These tokens bear no resemblance to the original data and appear as random strings to unauthorised parties, offering a strong defence against fraud. This benefit is especially vital in the face of increasing CNP transactions, which are more susceptible to fraud due to the absence of physical card verification.

Furthermore, tokenisation aids in detecting suspicious patterns that may signal fraudulent activity. Unusual token usage or atypical patterns serve as red flags. Visa has reported up to a 50% reduction in fraud with network tokenisation in Europe (source: VisaNet March 2022). These insights empower companies to take corrective actions while respecting customer privacy.

As digital commerce continues to expand, customer expectations for speed, convenience, value, and choice have risen. Network tokenisation not only facilitates meeting these expectations but also contributes to increased customer retention in the subscription economy, improved conversion rates, higher authorisation rates, reduced fraud rates, and cost savings. Network tokenisation offers security, efficiency, and competitive advantage, making it an attractive option for merchants looking to thrive in the digital commerce landscape.