Network tokenisation is innovating the payments experience

The global economy is in the midst of a digital payment revolution. Accelerated by the effects of COVID-19, the pandemic pushed many consumers from cash to using digital and contactless payment options for the first time. Nowhere else has unprecedented and unforeseen growth occurred as in the digital and ecommerce sectors, especially businesses within industries that rely heavily on digital transactions such as retail, restaurants, banking and insurance.

In fact, over 82% of Americans currently use digital payments according to McKinsey, making the demand for a faster, easier and safer payments experience to rise significantly.  

The rise of contactless payments comes with its challenges, specifically security. To safeguard against security breaches due to the volume of contactless payments, business institutions have been relying on tokenisation, a security measure that replaces sensitive information within a unique code called a token. Tokens shield consumers from identify theft, so they are specifically useful in the event the consumer’s information is hacked, leaked, or stolen.  

Below are some of the biggest benefits of payment tokenisation for both businesses and consumers.

Leveraging the value of network tokenisation

One type of tokenisation that has become an optimal payment solution for many businesses is network tokenisation, which replaces a customer’s primary account numbers (PANs) and other card details with a token issued by the card brand during checkout.  

As security breaches and threats become more common, businesses must find solutions for limiting risk of exposure and alleviating compliance obligations, making network tokenisation more critical for merchants than ever. Here’s three reasons why companies are turning to network tokenisation and how it has become one of the most powerful tools available:  

Higher payment authorisation rates

Payment cards can be declined for various reasons – from suspicion of fraud to inaccurate or outdated information – which may result in the loss of sales and a poor customer experience. With network tokenisation, brands can directly communicate with the issuing bank to verify the legitimacy of the card, preventing card declines.  

Since the tokens are going directly to the source, these transactions are deemed to be more secure and trusted by both the issuing and acquiring banks. According to Visa, payment transactions using network tokens can reduce fraud by nearly 26% and have an average authorisation rate increase of 2.2%. With more successful payment transactions, businesses increase revenue and creates loyal customers who are likely to repeat transactions from that brand.  

Lower interchange rates create lower costs

There are costs associated with accepting credit cards, and the majority of that cost comes from interchange fees, which offset processing costs and any potential risk involved in payment approval. The interchange rates are calculated using units of measurement called ‘basis points’. For credit card processing, one basis point (BPS) is typically one hundredth of one percent.

In April 2022, Visa announced a rate increase of 9-10 basis points on qualifying Visa transactions when they are processed without the use of a network token. This is largely due to the increase in ecommerce, which faces riskier and less efficient transactions compared to face-to-face payments. Verticals such as retail and insurance, which have high volumes of online transactions, are greatly impacted by the recent rate increases, thus turning to network tokenisation to help offset the overall cost of each transaction while making their payment processing efficient and safe for customers.

Increased retention and persistence

According to Visa, more than two-thirds of US consumers choose to store a credit card on file or set up recurring billing with merchants to avoid manual key entry. However, problems can occur in this scenario when credit cards need to be reissued for any reason. Per Visa, 35% of their survey respondents admitted they had forgotten to update their card information with merchants at least once. Their research also found that merchants generally reach out to customers 2-3 times to try to update card details before cancelling services.  

Auto, mortgage, insurance utility, and other types of business services that rely on recurring digital payments services can amount to greater resource allocation and higher operational expenses for businesses collecting the payments when cards expire. These issues can result in missed payments or cancellations and greatly impact the customer. But with network tokenisation, tokens can be updated in real-time to prevent recurring payment transactions from failing.

The positive impact on network tokens

Network tokenisation packs quite a punch and the positive financial impact is substantial, especially for enterprise organisations with high volumes of transactions. Even a marginal decrease in interchange fees and payment declines can have a huge impact when applied across thousands or even millions of monthly transactions. By converting stored credit card data to secure network tokens, customers who shop online – whether they’re shoppers, diners or policyholders – get the benefit of higher security, convenience and overall better customer experience.

With the accelerated growth in digital payments, customers expect increased speed, convenience, safety and choice. When businesses work with payments networks to access this critical capability, they are bound to increase revenue with more repeat business and deliver a frictionless payment experience every time.

About the author: Sarah Owen is Chief Product Officer for digital payments network One Inc.