Digital Transactions Authoritative, insightful and timely information for payments professionals
Network tokenization is a term that’s quickly been finding its way into the fintech and payments spaces, and that’s for good reason, given consumers’ awareness regarding data breaches and security. So, what is it exactly? Tokenization is what major payment networks like Visa, MasterCard, and Discover use to replace primary account numbers (PANs) and other details associated with payment cards.
That sensitive data is replaced with a token, meaning a customer’s actual card data are safe from hackers who now don’t have access to that information. By 2023, 80% of payments will be digital, according to estimates by Forrester. That means a secure and precise payment solution like tokenization will only become more urgent.
Tokens are extremely useful to both consumers and merchants, as they make payments more convenient and secure for both parties. Here are some of the specific benefits:
Real-Time Payments
Tokenization enables real-time payments, which are instant electronic payments, at any time, transferred from one bank to another. These are different from the typical two-day automated clearing house transfers. The only requirement for real-time payments is that the two financial institutions must be on the same network.
Enhanced Security
The primary account number for network tokens does not need to be revealed. Since tokens are authenticated by merchant-specific data, the token alone is almost useless. On its own, it has no information that a hacker could use for fraud. This means merchants have increased security and happier customers.
Lower Interchange Rates
Card-not-present (CNP) interchange rates are higher than card-present rates because the cardholder is not present, which heightens the risk of fraud. Sometimes CNP rates are as much as three times higher than for card-present transactions, but tokenization helps lower the cost because it makes CNP actually card-present instead.
Lower Declines
When a cardholder’s account is suspended for fraud, the holder can’t use that card. Period. That is not the case with network tokens, which can continue to support transactions when the cardholder’s PAN is suspended because of suspicion of fraud.
Merchants have been thrust into a world where more shoppers demand more transactions be completed quickly with more security. But while merchants and shoppers demand these transactions be safe and secure, network tokenization simplifies the process while securing payment details.
Network tokenization enables a richer, far more secure payment experience. And the technology couldn’t have arrived at a better time, what with the growing, collective habit among consumers of mindlessly grabbing the phone to send money (and emojis) via apps. Network tokenization steps in to play the role of the adult, providing security guardrails while at the same time allowing a customer’s mobile-phone number to become their payment method.
It’s a win-win: this new type of token facilitates both security and simply effortless payment.
—Larry Talley is founder and chief executive of Everyware.
