First Off, What’s "Tokenization"?
There is a lot of talk about tokenization in the world of credit card payments. What does that mean? And why should you care? Payment networks such as Mastercard, Visa, American Express, and Discover use tokenization to replace primary account numbers (PANs) and other details with ones provided by the card company.
The term "security tokens" refers to "merchant" or "merchant acquirer" tokens. As an alternative identifier, the term is used to protect sensitive data in transit. By replacing sensitive data with tokens, the merchant can eliminate the risk of unauthorized access to sensitive information. So, even if a merchant's system is breached, your credit card data is still safe since hackers only have access to token numbers as opposed to your actual credit card information.
What Are Some of the Benefits of Using Tokenization? The benefits of tokenization can be substantial for both merchants and consumers. It can help merchants reduce fraud and seizure risks. For consumers, tokenization provides greater payment security. In general, tokenization can make payments more convenient and secure for everyone involved. Let's focus on the six main benefits you should be aware of.
Enhanced Security The PAN for network tokens doesn’t need to be transmitted or revealed. Unlike PCI tokens, network tokens are interoperable in the payment flow. Tokens are issued by a token service provider and can only be requested by a single individual. Generally, network token-based transactions do not fall under PCI tokens since they are authenticated using merchant-specific data. A token alone is inoperable in the absence of PCI scope since it does not perform merchant-specific authentication for each transaction. By converting stored credit card data to secure network tokens, merchants can increase security, improve customer experience, and increase authorization success rates. Through an agnostic orchestration layer and a network token strategy, an organization can use a network token or a secure, vaulted PAN token. The method used depends on the payment processor.
Lower Interchange Rates Lower Card-not-present (CNP) interchange rates are always higher than card-present rates. The cardholder is not present to sign for the purchase, so the risk of fraud is higher. In fact, in some cases, CNP interchange rates can be as much as three times higher. Tokenization helps to lower these costs by turning a CNP transaction into a card-present one.
Real-Time Payments Tokenization can support real-time payments, which provide an immediate exchange of funds between financial institutions. This is different from the typical two-day ACH transfer. In order for tokenization to work, both the payer's and payee's banks need to be on the same network.
Higher Approvals and Lower Declines When a cardholder's account is suspended for fraud, they can't use their card for anything. With network tokens, cards are neither suspended for fraud, nor updated. With network tokens, fraud that affects a merchant's frequent token doesn’t affect other tokens within the ecosystem. Every network token has a domain restriction tied to one merchant. In this way, card issuers and networks can support transactions for cardholders whose PANs have been suspended due to suspicion of fraud.
Chargebacks Chargebacks happen for a variety of reasons. In some cases, they’re the result of fraud. But in others, they’re simply due to customer error—the customer didn’t recognize a charge on their statement, for example, or they were dissatisfied with a purchase and are seeking a refund. In either case, chargebacks are costly—not just in terms of the transaction value, but also in terms of the fees charged by the card issuer and, in some cases, penalty fees assessed by the acquirer.
Tokenization can help reduce the number of chargebacks a business incurs. By replacing sensitive card data with a token, businesses can limit their exposure to card data and, as a result, lower their risk of fraud.
Checkout Improvements By reducing declines and enhancing security, online transactions can be made more convenient for customers. Customer accounts do not need to be logged into to update payment methods after expired account details are removed. By authenticating the merchant and not the cardholder, you eliminate the need to verify CVV/CVC, which is easily forgotten or entered incorrectly, resulting in a false decline. Merchants no longer have to authorize transactions that appear on cardholder statements when account verification occurs during token provision.
Is Tokenization Really Necessary, or Is It Just Another Security Option? Over the past few years, consumer spending habits have shifted dramatically. Digital transactions have increased faster than in-store sales today. However, this rapid growth and technological advancement also present a number of challenges.
Despite the increase in fraud, merchants are under extreme pressure to deliver seamless payment experiences to meet consumers' ever-increasing demands. Merchants are turning to various technologies, such as network tokenization, to strike a balance between seamless shopping experiences and high levels of security. Although network tokenization is often thought of as an optional addition, it's a revolutionary technology that simplifies online commerce and secures payment details.
Is Anyone Offering Tokenization as a Viable Solution to Security Breaches? Tokenization is available in several different forms these days. SecurePay provides high levels of security. Another popular solution is Tokenex, which provides tokenization as a service (TaaS).
But Everyware is different from the rest.
As a leading provider of contactless payments and customer engagement solutions, we offer Pay By Text functionality, which allows customers to make payments using their cell phone numbers. Rather than requiring private credit card information to be shared, this new payment method is paving the way for the industry's future.
As part of our partnership with Visa, the world's largest provider of digital payments, we are leveraging Token ID, a Visa Solution that allows banks, merchants, regional payment schemes, clearinghouses, and other payment stakeholders to build, manage, and control their own tokenization capabilities. Token ID allows us to act as a token requestor for our clients, requesting network tokens on their behalf. Paying with a cell phone number will be possible across merchants and payment processors, wherever Visa is accepted.
With the combination of Visa's tokenization technology and our solution, customers can approve payments swiftly and securely by replying 'yes' by text message. By making this payment method available to payment processors, gateways, and software companies, their customers will have a better checkout experience, and their authorization success rates will rise for all types of cards.
Or as Larry Talley, Founder and & CEO of Everyware described, "Network Tokenization has taken a giant step forward in security and value for card-not-present transactions. Through the power of the Network Token, Everyware can provide a frictionless payment experience."
Final Thoughts So there you have it―a brief overview of network tokenization and its many benefits.
We recommend that you look into network tokenization if you are concerned about the security of your payment card information. This is a simple and effective way of improving the security of your payments.
Hopefully, this helped make things clearer for you. Feel free to contact us if you have any further questions―we're happy to help.