Striking the right balance between seamless payments and strong security is crucial for merchants.
As eCommerce continues to flourish, a PYMNTS Intelligence report, “Why Network Tokenization Is eCommerce’s Newest Essential,” in collaboration with Spreedly, examines why the integration of network tokenization has emerged as a vital strategy to protect sensitive payment information while enhancing the customer experience.
Payment tokens are unique digital identifiers that replace sensitive payment details during transactions, rendering them less valuable to hackers. This technology has matured rapidly, allowing merchants to use tokens instead of actual payment information. For instance, when a customer makes a purchase, their payment data — like credit card numbers — is substituted with a token that carries no intrinsic value. This process not only protects the consumer’s card information, but also minimizes the risk of data breaches.
According to the report, tokenization can significantly enhance security and streamline the payment process. For example, 35% of cardholders are likely to abandon a merchant after a single card decline, emphasizing the need for an easier and safer checkout experience. Tokenization allows merchants to offer secure automated checkouts, which creates trust and encourages long-term customer loyalty.
Network tokens, generated by major card networks like Mastercard and Visa, offer a security advantage over traditional tokens. They conceal card details throughout the entire transaction process and include a unique cryptogram for each transaction, providing an additional layer of protection against fraud.
According to the report, network tokens can improve authorization rates by an average of 2.1% and reduce fraud by 26%. These improvements translate into substantial financial benefits for merchants. For example, if a subscription service experiences even a 1% failure rate due to outdated card information, it could lead to significant monthly losses — up to $100,000 for a service with 1 million subscribers. The dynamic updating feature of network tokens ensures that customer payment methods remain current, which is crucial for subscription-based businesses.
As the global payments ecosystem evolves, network tokenization is becoming a necessity for merchants looking to safeguard their transactions and enhance customer experiences. The technology not only offers greater protection against fraud, but also helps merchants streamline compliance with the Payment Card Industry Data Security Standard (PCI DSS), reducing the amount of payment data subject to regulation.
With projected card fraud losses projected to reach $165 billion in the next decade, the need for additional security is pressing. Card networks are imposing higher fees on non-token transactions, making network tokenization a financially astute choice for merchants. By adopting this technology, businesses can optimize payment processes, reduce compliance costs and improve authorization rates, all while providing a smoother shopping experience for consumers.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More