As payment service providers (PSPs) continue to seek seamlessness and security throughout their operations, tokenisation has once again become an industry talking point as the benefit of fintech’s most contemporary capabilities comes to light.
There’s a lot of sensitive data flying around in finance, and as much data that must be both safeguarded and applied in the most secure way possible.
Tokenisation has become a remedy in this department and is becoming increasingly adopted by the industry for the benefits it’s able to offer to both ends of the transaction.
The technology essentially allows merchants to retain payment credentials without having to obtain a full Payment Card Industry Data Security Standard (PCI DSS) certification.
While PCI DSS security standards, established in 2004 by circuits such as Visa and Mastercard, have helped secure credit and debit card transactions against data theft and fraud, merchants have to safely store sensitive card data during transactions and for recurring payments.
Tokenisation can be the solution to this problem by maintaining security benefits via the numeric or alphanumeric tokenisation of card data, streamlining the process for the merchant.
Merchants and retailers that leverage tokenisation can store tokens in order to complete future payment transactions.
This is particularly relevant for one-click payments and MIT payments (Merchant Initiated Transactions), where payment is initiated by the merchant without the real-time presence of the buyer, such as automatic billing.
There are two categories of tokens: those offered directly by the PSP and ‘Network Tokens’ introduced more recently by circuits such as Visa and Mastercard.
Tokens that are offered directly by the PSP shift the compliance obligations coming from card privacy rules away from the merchant and onto the provider, which stores card primary account number (PAN) data and gives the merchant a token.
This token is then stored by the merchant for each new transaction performed on that card, allowing the end customer to experience a seamless payment process without privacy compliance costs unduly falling on the merchant.
The newer Network Tokens confer additional benefits to PSP tokenisation as they can contribute to a further increase in successful authentication and authorisation rates. The ability to recognise more legitimate repeat customers is proven to lift conversion rates 2.2 per cent on average.
Moreover, Network Tokens can combat payment friction that emerges over the lifecycle of a card, such as at the point of card expiry or card loss and replacement. Network Tokens automatically update tokens in line with the data of the underlying card, without the need to involve the buyer.
Tokens are becoming increasingly important tools in an increasingly complex, global and competitive e-commerce context. MarketsandMarkets estimates that the global tokenisation market will grow from $2.3billion as of 2021 to $5.6billion by 2026, at a CAGR of 19.0 per cent during the forecast period.
Tokenisation and Network Tokens in particular are able to increase authentication and authorisation rates for its customers’ e-commerce transactions. For instance, Visa transaction data shows that tokens can reduce fraud by 26 per cent compared to traditional online card transactions.
According to circuit networks’ data, the increase of the transactions approval rate was between +2.5 per cent and +6 per cent in February 2022.
In perhaps the most recent headline to mention tokenisation, the PSP and payment orchestration platform Axerve announced this week that it intends to expand its existing proprietary e-commerce tokenisation offering to include these fabled Network Tokens.
Axerve is a part of the European fintech Fabrick’s open finance ecosystem, and, beyond this, the company supports a diverse mix of institutions, international corporations, and retail chains by offering innovative technology and data security across global payment methods.
Commenting on its inclusion of Network Tokens, Axerve CEO Alessandro Bocca emphasises how the technology is “now more important than ever in the e-commerce environment.”
Bocca continues with: “They have the twin benefits of improved user experience and safety, the latter in turn supports increased authorisation rates. Axerve’s inclusion of tokens and Network Tokens can contribute to a further increase in authentication and payment approval rates, as they have been developed according to international standard principles.
“Network Tokens are well placed to withstand card lifecycle events such as expired or defrauded cards, which to date have interfered with straightforward payments and caused friction.”
The platform is also to welcome Chili, an international tech media and video-on-demand (VoD) firm, as one of the first companies to be activated on Network tokenisation.
Giorgio Tacchia, founder and CEO of Chili, recognises the benefits of tokenisation: “Payments with fewer barriers result in higher conversion rates for our billing and also creates happier customers who don’t have to face undue hassle at checkout.
“Tokens remove a layer of complexity from our day-to-day operations and make our customer payments friction-free, meaning we at Chili can focus on our core business.”
The enhanced solution will subsequently be rolled out with Axerve customers Aruba and Twinset in the near future.